Fact: You will be hard pressed to secure financing, sell your company, or do an IPO if you’re unable to collect and present your corporate information in a professional way.
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 you to pull everything together to ensure the deal is a success.
But what if you’re unable to find the documents that have been requested?
It has been estimated that every year 7.5% of all company documents are lost and 3% are misfiled, while the cost of finding a lost document is on average €1001. Based on the assumption that you’re responsible for 4000 active legal documents in a year, you could lose or misfile up to 420 documents and risk spending upwards of €42,000 annually on locating or recreating documentation!
In addition to losing time and money, showing your potential investor or buyer that you are disorganized can instill distrust in your business. This can translate into great scrutiny which can eventually turn into deal fatigue.
Furthermore, when your corporate house is a mess, due diligence can bring to light corporate problems that can completely derail negotiations.
The truth is, you simply can’t afford to be disorganized.
To prepare your company for due diligence, it’s vital that you adopt a systematic way of organizing everything from board and stockholder minutes, stock records, policies and contracts - ideally on the cloud, instead of spread across different files and hard drives. With everything in a single, secure database, you can compile, present and share information quickly and securely, ensuring the protection of confidential data that is often disclosed during due diligence.
What’s more, with proper data governance and constant oversight, you can fix compliance issues and mitigate risks before they negatively impact the outcome of due diligence (like decreasing your company’s valuation or effecting your ability to negotiate favourable terms).
In short, when your corporate house is in check, you’re better prepared for due diligence. The company will be more attractive to potential investors or buyers, the deal will move faster and you can focus on the strategic work of due diligence rather than the paperwork.
To help you get ready for due diligence, we’ve designed a helpful checklist for getting your corporate house in order and ready to answer the most common due diligence requests from buyers and investors. Download it here.