As the Chief Executive Officer, you will be hard pressed to secure financing, sell your company, or issue an IPO if you’re unable to persuade prospective investors or buyers. By collecting and presenting your corporate information in a clear, complete, and concise professional manner, you will dramatically improve your chances of success.
Preparing for Due Diligence
Before a potential investor or buyer decides to pull the trigger they will almost certainly demand a long list of legal, accounting and business documents to determine the health of your company. Those documents will include meeting minutes from board and shareholder meetings, articles of incorporation and bylaws, your top 50 customer vendor agreements, the historic capitalization of the company, financial statements, and more. It’s up to you, your executive team and your attorneys to pull everything together to ensure the deal is completed as a success.
What if you’re unable to find all of the business records that your prospective investors or buyers have requested?
It has been estimated that every year almost 10 percent of all company documents are lost or mis-filed, and the cost of recovering or recreating those documents total well into tens of millions of dollars annually, nationwide.
In addition to losing time and money, showing your potential investor or buyer that you are disorganized will almost certainly lead them to question your team’s competency and your management and leadership skills. It can also lead to distrust in your management team and your overall business. This will frequently translate into greater scrutiny of your corporate books and business records, and your financial statements.
All of this can eventually and quite quickly afflict the investor or buyer with deal fatigue, and result in the loss of the transaction. Furthermore, when your corporate house is a mess, due diligence can bring to light corporate problems that can completely derail the negotiations and scuttle the deal.
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 in the cloud, instead of spread across different files and hard drives. With everything in a single, secure location, 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, which may include decreasing your company’s valuation or affecting your ability to negotiate favorable purchase terms.
In short, when your corporate house is in order, 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 due diligence checklist for getting your corporate house in order and ready to answer the most common due diligence requests from buyers and investors.