Preparing for due diligence can be an all-consuming task for a startup. A potential investor or buyer might demand a long list of legal documents: board meeting minutes, articles of incorporation, the top 50 customer vendor agreements, the historical ownership structure of the company, and more. It’s up to your team to pull everything together in a timely manner to ensure the deal is a success.
For many startups, the desire to keep margins thin means that you often have few resources to commit to retrieving documents, summarizing information and printing out reports. If the preparation of due diligence falls on the CEO, CFO or sole Legal Counsel, it’s vital that you leverage tools to overcome the challenges that are native to startups: lack of structure and resources. After all, you don’t want any surprises in the evaluation to derail the investment.
So, how can you prepare your startup for eventual due diligence?
Managing documents in a consistent way
The first – and arguably most important – way to get in front of the challenges of preparing for due diligence is to have a smart document management system in place. Why? Because document retrieval and manually generating reports can be a major drain on your resources.
Compiling documents for due diligence can be an all-consuming task: pulling together documents that are scattered across hard drives or hidden in emails, checking accuracy with colleagues and manually plugging data into a spreadsheet to help you present all the information in a cohesive way.
Instead, with a consistent document management system, you can trust that the information at hand is complete and accurate. Meta data like contract values, business registration, addresses, dates of acquisition, expiration dates and more are tracked and can easily be found without having to comb through documents. And, when all your data is cross-referenced your team can compile, present and share the information your potential investor needs quickly and securely, making your company more attractive.
By taking proactive measures to ensure your information is well organized in a smart system, you can focus your team on the strategic work of due diligence rather than the paperwork.
Preparing for due diligence with technology
Cloud-based solutions can help you store, manage and report on all your entities, contracts, compliance, claims and corporate housekeeping.
Here are a few due diligence reports you can generate quickly if you use a smart repository for your legal information:
- Ownership structures. If you need to show the current ownership structure across multiple entities, you can generate an org chart for you at the touch of a button.
- Historical ownership structures. Ownership structures can change over time, and your investor may want to see this. With all the details in a central database, you can generate historical org chart too.
- Custom reports on contracts. Do you need to evidence customer and supplier contracts? Quickly compile reports according to contract value, length, department, expiry date and much more.
- Company director appointments. Provide a record of company director appointments in a matter of seconds.
- Plus, with cloud solutions you can share documents with your investors or their legal teams securely.
When you have all of your legal information at your fingertips, you can quickly generate due diligence reports – putting your startup in the best position to get the deal done. To see how effacts can help you download our Due Diligence Use Case.