How to Prepare a Virtual Data Room for a Thorough Due Diligence Process?

The term due diligence describes a specific practice when purchasing a company. In this case, virtual data room software ensures the transparency of this procedure. So, how to organize the due diligence data room? Here is more about it.

What is due diligence?

Before concluding a deal, it is useful, and sometimes vital, to identify all its potential opportunities and risks, the identification of which will help to correctly determine the value of the acquired assets and the overall profitability of the operation. Therefore, the due diligence procedure is used here. Usually, the risk assessment is carried out when the owner changes the company, the partners enter into agreements to invest large sums of money, during M&A, IPOs, real-estate transactions.

Due diligence is an ancillary audit service that includes a full study of the enterprise, based on the analysis of quantitative and qualitative indicators of the entity, as well as the system of management and internal control. Due diligence is a thorough study of key tax issues, contingent liabilities, risks.

Conducting due diligence typically includes consideration of:

  • corporate documentation;
  • documentation relating to the acquisition or sale of shares or other property;
  • contracts;
  • customer and/or supplier databases;
  • documents for real estate;
  • materials of judicial proceedings;
  • documents relating to ownership of copyright objects, and possible violations of such rights;
  • issues of information security and data protection.
  • Data room due diligence checklist

    The documentation of the due diligence procedure contains business-critical data. Thus, a reliable platform should be invented that is easy to manage. In this case, the virtual data room is the best variant.

    Digital data room provides the organization of joint work with documents and ensures well-structured data repository and digital secure workspace. The main purpose of the program is the complex organization and optimization of the due diligence document management.

    All due diligence documents in processing go through the project stage. The system supports the full cycle of work with projects: creation, editing with preservation of previous versions, approval and approval (signing), and, finally, registration of the original or internal document created based on the project. Therefore, the following data room modules to set up:

    • The creation of documents in the program is based on document templates. A message about the prepared draft contract is sent to employees involved in the negotiation of the contract. Upon receipt of the contract from the counterparty in paper form, the contract can be scanned and entered into the program.
    • To register documents, registration, and control cards are used, which contain all the primary data, as well as the necessary information about the state of the paper document (location, state of execution, etc.). When registering from the card, it is possible to enter a scanned image of a document into the system, which is automatically attached to the card
    • After registration, the incoming document goes through the stages of consideration, resolution, control, and execution. Further work of users with the document can be carried out completely in electronic form or paper form, depending on the style of the company.

    So, the data room ensures an open, extensible architecture that allows organizations to first rapidly expand their document management platform in response to new business objectives such as records management and secondly integrate records management with broader strategic initiatives such as knowledge management.

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