Meticulous record keeping and an organized data management system are imperative to running a business successfully. Of course, there are also a number of instances throughout the life of a business during which a company will be called upon to furnish some of their records and documentation. This kind of massive data exchange is probably most commonly associated with a transaction-related due diligence investigation. Given the extent of data sharing required during any due diligence process, a coherent document retention and management system will prove critical to sealing the deal. Here is how to organize your virtual data room to ensure your company is adequately prepared for due diligence:
Use a Specific Document Naming System
This may seem like such simple, common sense advice, but plenty of company personnel are guilty of saving documents without paying much attention to how they name the file. This can make finding a particular item downright aggravating later on down the road. Generic naming designations such as “contract” or “amendment” are clearly inappropriate given that there will no doubt be hundreds or thousands of documents that classify as contracts, amendments, and so forth. For this reason, companies must take the time to develop a specific document naming scheme.
Of course, there is no correct way to go about naming documents and files, so long as there is a consistent approach to doing so. It may be beneficial to name the document according to its type, the relevant parties or departments, and/or any element that will help signify its particular contents. For example, a company contract with Vendor A relating to the supply of microchips may be designated as “Vendor A - Supply Contract - Microchips.” This makes it clear to those who come upon the particular document what it is that is contained within it. In addition, by utilizing the same naming system for every document, it will be easier to organize and find items when they are needed.
Create Folders and Subfolders
This again no doubt seems like such a no brainer, but plenty of company computers are inundated with files saved across various sections of the hard drive. This is actually a really good reason to invest in a virtual data room (VDR). A VDR allows those files to reside in the cloud, and thus they are accessible from anywhere at any time. Of course, there still has to be some kind of deliberate organization for documents that are saved and shared via a cloud-based application.
Within the VDR, it should be quick and easy to create folders for certain types of documents, such as those pertinent to Financing, Accounting, HR, and so on. Then, within each category of folders, there should be subfolders to further divide items based on the particular type of document or its content and scope. Properly classifying and organizing documents will facilitate the due diligence process, as the investigating team can be granted access to the VDR and easily locate and analyze the data under review.
Keep Things Updated in Real Time
Document management will always be an ongoing process. It is likely impossible for any company to establish a VDR and then never bother with it again. The economic climate and business circumstances are always going to be in flux, and the data within a VDR will need to reflect those changes. As a result, someone must be tasked with keeping things updated in real time to ensure accuracy. This will be particularly important before and during due diligence because the discovery of any discrepancies may prove fatal to a deal.
Conduct Searches to Confirm Organization
Instituting a strong data management strategy is key, but evaluating the efficacy of the implemented system is of equal importance. Although it may seem like things are organized well, there is always the chance that the system is not working as well as it should be. The only way to know is by testing the system. Personnel not routinely involved in the data management process can help by examining the system to see if they can understand it and/or essentially going on a scavenger hunt to see if they can find items based on how they are organized. This may seem a bit silly, but when the due diligence team embarks on its investigation, your company will want to be sure that there will not be items that are missing or difficult to find.