11 Nov How to structure documents in a data room for due diligence

When it comes to selling a company, possibly the most important part of the whole process is the due diligence activity conducted by prospective buyers. If the potential buyers of a business cannot conduct a thorough due diligence, they are unlikely to have confidence in the opportunity. The seller of a business must clearly and concisely present the information that describes all aspects of their business. This information must be detailed, accurate and up to date.

Begin with the end in mind

Before even collecting your first document, decide on how all the documents will be stored and presented to potential buyers.

Using a virtual data room to store documents for the due diligence process will save time, effort and cost in the sales process.

• Time is saved by digitizing all documents and storing them safely online in one location. This is much quicker than holding documents in both paper and digital formats in different locations.
• Effort is kept to the minimum through quick and easy administration of all the documents in an online data room. This is far more efficient than trying to track and send documents by post or courier. Also, fewer questions are raised by buyers if the documents are clearly organized.
• Cost is kept to a minimum through lower overheads from using an online data room as opposed to hiring a secure room in an office building.

Once you have decided to use a virtual data room for the due diligence process, you must organize the folder structure for the documents you plan to present.

Organizing Information for the due diligence process

Information about your company must be presented in such a way as to be easy to search, logical in order and present an accurate picture of your company’s performance and opportunities.

Using a data room to organize your documents is exactly the same as saving documents to a cloud storage service such as Dropbox, OneDrive or Google Drive. The difference is that the information in a virtual data room is more secure and easily managed for the sales process.

From years of experience, we have found the following organization and grouping of documents works very well for both sellers and buyers:

• Legal Situation
• Tax Situation and Financial & Economic Situation
• Market, Industry and Strategy
• Environmental
• Insurance Coverage
• Technology Situation
• Employee Situation

Each folder should contain multiple documents on the topic concerned.

We also recommend the seller creates a summary document that lists all the documents contained in all the folders. This provides potential buyers with an index and quick reference to the information they need. This index will save time for buyers and will keep requests for information to a minimum if everything has already been clearly organized.

The sale of a business is a complex process and the organization of the sales information may not, at first, seem like an important factor for the seller.

However, giving easy access to information that has been structured in a logical manner is critical to helping the sale of a business. Do not underestimate the importance of properly organizing your data room to give your business sale every chance of success.