The Purchase Agreement has been executed, the investor funds are in the bank, and now you are starting to really get the business started. One of the first things to do is to put in place processes that you will use when you stop. In this context, “stop” means when the business ownership changes due to a public offering, merger or acquisition, or even a major infusion from another investor. All of these events will involve some level of due diligence by the new investor or their representatives. Without the continuous accumulation of information that may be required, due diligence items can be a tedious distraction or could even cause the transaction to fail or the deal terms to be significantly altered. Rarely do due diligence efforts work to the advantage of the company.
The amount of due diligence and the subjects covered can vary widely. It can be as simple as a meeting with the senior staff or as burdensome as the detailed review of each item in a 1,200 item list. Hard disk space and file cabinets are essentially free compared to all other business expenses. There is no value in spending time deciding what to archive. As a general rule of thumb: “If you signed it, save it”. This includes every non-disclosure agreement that has been executed, every offer letter (whether accepted or not), every supplier or customer purchase order or contract, and every actual or threat of legal action. When first confronted with the due diligence requests, many companies are overwhelmed. To be fair, in aggregate, the list can be long and intimidating. However, if the documents are saved in ONE PLACE and everyone is aware of the need, the archiving process simply becomes part of the normal course of business, and the due diligence task becomes easy when the request is made.
In addition to the rule of “If you signed it, save it”, follow the other rule: “If you think it might be required, save it”. Alternatively, consider the cost of trying to reconstruct history at the time of need and asking virtually everyone to search their records for any information that they might think is relevant.
The fear of the discovery process associated with litigation is another positive reason for saving all documents early and often. The fact that they are not stored in one convenient location will not relieve the company of the burden of producing the information requested.
Finally, by building this simple process into the company’s standard operating procedures, you are sending a message to everyone that the company is forecasting and planning for a significant event in the future - something that will encourage employees to participate in the archiving process.