Posted on August 15, 2013December 25, 2018 by Joanna Miller — Leave a comment

Getting to grips with the data room 101

Data room 101

As part of every business sale process there will be a period of due diligence. During this period, potential buyers will want to make sure that they are really actually buying the business that they think they are! Part of this will mean that all your company documentation and processes will be looked over. All of this information goes into a data room. Before the days of software used to be a physical room with restricted access. Nowadays the same process is replicated, however, software has replaced the physical room. If your business is less than £1million, it’s likely to be done without any special data room software. However for companies which are larger, expect to use data room software.

Time to get cracking!

Instead of waiting to compile the contents of your data room when the buyer starts asking for information. I strongly recommend that you start as soon as possible. This will help make it less stressful as dealing with demanding questions could take its toll, especially if 10 questions are coming at you from 3 different buyers. You don’t need to spend vast amounts of money on the software, just use Dropbox or box.net to get going. Make sure its got a strong password and if storing the information on your laptop make sure that’s secure too.

Data room software explained

There are a number of companies that offer data room software solutions that include helping you set up your data room (for a fee) and helping you keep it up-to-date. Focusing on the software side of things, good data room software features must include:

user login and access management – restrict who has access to what and for how long
version control – so changes to documents can be tracked
document restrictions – such as the ability to limit the document to be viewed online only and disable print options
reporting – information and statistics on the documents as well as who’s accessed those documents

It can get quite expensive and I mean into the hundreds if not thousands of pounds as these data room companies use pricing models that can be per page upload and per page stored in the data room. We go into this in much more depth in our ‘Creating the Data Room Pack‘. That’s why its good to have a ‘test’ data room so you can see how many documents you are storing and can estimate the cost of having the data room for the duration of your business sale.

Understanding the data room structure

Having the right data room structure will help find supporting documentation quickly and keep you organised. Every component in the data room will have a numbering scheme – this applies to both folders and files so check out our top-level data room structure sample in our free document samples section. Filename conventions are also important especially if they are date related.

That was easy, what’s next?

Now that you’re all up to speed with the data room, its software, and have set up your data room structure. It’s time to collate all the information that goes into it. That’s where our Preparing for Due Diligence Checklist Pack comes in. The checklist makes sure that you store all your business’ documentation, in the right structure ready for those potential buyers. It’s tough work, but going through this process will help streamline your business as you’ll find quicker and better ways in extracting the information from the business for the data room.

It’s never too early to start – so time to get started!

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business. Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

Posted on July 16, 2013December 25, 2018 by Joanna Miller — Leave a comment

Understanding the importance of the data room

Understanding the importance of the data room

Before

Had you been selling your business before the age of the Internet, you would have set up a physical data room for due diligence of your business records by the buyers. A data room becomes necessary when there’s a large amount of confidential data that you want to share with your prospective buyers for the process of due diligence. In old times, this would be a closely guarded room with copies of all documents that are requested or desired by your buyers during the process of business sale. Only one party would be allowed to visit the data room for due diligence of records. In case extra copies were needed, they would be provided after keeping a proper record, so that no information fell into unwanted hands.

Now

Setting up a physical data room is time consuming and expensive (take a look at our data room structure sample in our Free Document samples section). At times, the advisors and accountants of the buyer may have to be flown in from another city just to scrutinise the documents in the data room. Thanks to the Internet, these days, companies establish online or “virtual” data rooms that are accessible to all interested buyers through the Internet. A virtual data room is simply a secure website that contains all the required documents from your company. Some of these documents may be highly confidential, so a virtual data room has fool proof security against hackers or unauthorised access. The people who are authorised to access the information are given login IDs and passwords. Also, you can assign different clearance levels to different people, which means that a person can only access the documents that are required for diligence by that person. Restrictions are applied on dissemination of information through copying or printing.

Although a physical data room still becomes necessary in some highly secretive deals and government contracts, the increasing speed, ubiquity and security of the Internet has made it quite economical and convenient to establish a virtual data room. When you are going for a business sale, many bidders may be interested in your offer. If you have more buyers and all of them are asking you for different company documents for carrying out the due diligence of your business standing and claims, it becomes problematic to deal with them separately. Your data is confidential, so providing your documents to the bidders individually will loosen your control on your confidentiality. Moreover, responding to the buyers’ request becomes cumbersome and requires dedicated resources. The process of enquiry and response is also more time consuming. Your buyer may be in a different part of the world and may require access to the documents at odd hours. All these problems can be solved by simply establishing a virtual data room, which your buyers can access 24×7. Providing logins and passwords to each one of your buyers ensures tight control, as you are all the time aware of who is looking at which particular document. The documents that contain sensitive information can be shared only at key moments, with key people.

A data room multiplies the chances of making a bountiful exit from your business, as your potential buyers can find the documents at their convenience. Also, a data room indicates that you are indeed serious about selling your business and want to keep the whole process as transparent as possible. By being more open with your documents and data, you are basically showing your confidence in your business and your respect for the requirements of your buyers. Your data room will be used by the buyer’s acquisition team, who may belong to finance, legal, and other departments. It can be hard to respond to requests from all these quarters if you haven’t thought through and established a virtual data room and in the worst case scenario the deal could collapse with a nervous buyer if you were unable to provide the evidence in a timely manner.

In summary here’s why virtual data rooms are very effective during business sales:

More buyers become interested in your sale proposal when they know that you will provide them access to all relevant documents through a data room.
If you have given some time limit for bidding, having a virtual data room can increase the number of bids that you receive, as more people will be able to access your information, which is available 24×7.
You can have the knowledge about what your bidder(s) is looking at and understand the intentions better.
The business sale is accelerated as no time is wasted in requesting for and gaining access to the documents.
A virtual data room provides better control on data and the people accessing that data. You can apply digital rights management and prevent the documents from being downloaded or shared with unauthorised people.

So if you haven’t started getting your data room together now’s the time to do it and to help you, we’ve got just the thing that will make it easier for you and help you understand exactly what you need to do and what costs are involved, Creating the Data Room Pack which also includes a zipped up data room structure to get you started.

Posted on May 1, 2013December 25, 2018 by Joanna Miller — Leave a comment

Sell Your Business – Data Room Index

What should a Data Room Index look like?

When considering selling your business, you may hear mention of a Data Room. Since this is something specific to the due diligence process of a business sale or a project bid, your first question may well be “what is a data room”? And following after, you’ll then wonder what a data room index is…

What is a Data Room?

Data is the key to confidence on the part of a potential buyer, being an important factor in the agreed price – and indeed, whether or not a sale goes ahead at all. A data room is often used to help with this aspect of the process.

As a business vendor, you will want to make sure that your potential buyers have access to as much data about your business as they need, in order to make their decision, and to value your business fairly. At the same time, you may well have understandable concerns about the confidentiality of the data. After all, you certainly wouldn’t want commercially sensitive data to be sent around insecurely, with the risk of its being passed on to unauthorised parties.

This is where a data room comes in. The practice of using a data room dates back many years, and has traditionally been a specific room where all of the relevant data is kept for inspection by the bidders. The room is carefully monitored, with the purpose of ensuring that the data is only inspected there, and that it doesn’t leave the room insecurely.

As time has moved on and technology has advanced, the concept of a data room has become increasingly computer-based. If a physical data room is used, it’s likely to contain secure computers owned and controlled by the vendor (or their data room service provider). These computers can be used to view relevant data on-screen, but won’t be linked to the internet and won’t permit copies of files to be made or e-mailed.

In the past few years, though, virtual data rooms have become more popular, as they do away with a lot of the costs and logistical requirements of physical data rooms. A virtual data room is essentially a secure website, carefully controlled with authorised log-ins and data encryption, that allows access to all of the files that would traditionally have been available in the physical data room.

There are several benefits of using a virtual data room, including that authorised users can access it from anywhere with an internet connection, so there’s no longer any need for a dedicated room or physical security. It eliminates the need for bidders and advisors to travel to a particular location, so it reduces costs and allows inspection to be done at a time convenient to the due diligence team. This is especially useful when considering international acquisitions.

Unless your business already operates in the area of secure technology, you will almost certainly want to have a virtual data room set up for you by a specialist provider. They will ensure that only authorised users have access to the data, and that digital rights management restrictions are applied to documents so that they cannot be copied, forwarded or printed without specific permission.

When selecting a provider, ask for assurances that they have dealt with clients in your sector before, and check that they fulfil relevant audit and compliance requirements such as the International Safe Harbor Privacy regulations agreed between the United States and the European Union. You will certainly want them to offer security features such as digital watermarking, 256-bit encryption, two-factor authentication login, and customisable security clearance levels for users.

And what about this Data Room Index (or file structure)?

Your virtual data room provider should be able to advise you on a suitable data room index or file structure for the users to access, but when setting up the files, it’s helpful to consider the whole thing from the bidders’ point of view. You’ll want to ensure that everything they are likely to need is provided in the data room, so if in doubt, ask your own lawyer to get hold of (or create) the kind of checklist that a bidder is likely to use when undertaking due diligence. (You can also purchase our Data Room Pack at our store or visit our freebie’s to see our ‘Data Room Structure Sample’). The exact information to be provided will vary a little from sector to sector, but as an example, you’ll want to include the following in your data room index:

Legal – Certificates of incorporation, memorandum & articles of association, share registers, shareholder transaction listings, minutes of board and shareholder meetings, records of any lawsuits or legal proceedings, etc.

Financial – Statutory accounts, management accounts, asset registers, leases, land and building title deeds, finance policies, authorisation levels, etc.

Regulatory – Licences, certifications, registrations, official inspection records, etc.

Human Resources – Organisation charts, employment policies, salary structures, payroll records, employment contracts, staff turnover reports, etc.

Make sure that the files and folders are set out in a logical, intuitive way, and be sure to include contact details so that bidders can get in touch with your key people to confirm key information.

You will find that you can make life easier for yourself if you prepare for this process in advance. To a large extent, these documents are not unique to the sale process, but constitute the data that any business needs to be well-run, so you can prepare yourself for the data room by keeping good records of all of the above areas of operation. Then, when it comes to the data room process, you and your advisors can work with data room provider to ensure that your bidders have all the data they need – and maximise their chances of making bids that reflect the value of your business.

If you’re considering selling your business, you need all the help you can get, so check out the Sell Your Business Store to get an idea on how we can help you out.