The notion of Due Diligence often connotes to mergers and large acquisitions but keeping your company in audit shape everyday brings huge benefits – and less stress.
What does being due diligence ready mean from the financial and business management’s point of view?
It means that:
- Your company is always ready for different kinds of minor and major audits (tax audits, fundraising, joint ventures etc). It also builds trust as it proves that your company administration is in good shape.
- You personally are capable of effortlessly sharing any key documents with your colleagues or partners without hours of searching or being unsure of which one is the latest version.
- You are able to offer good internal and external administrative and legal service with no delay and less stress.
Therefore I suggest that the “Due Diligence attitude” should be applied to your daily business. Having secured access to all contracts and other due diligence material, you can run your daily business better and at the same time the value of your company strengthens. There are many sources to the latter: no forgotten contract terminations, better utilization of contracts, easy audit trail for executive decision making, and your auditors get a picture of a well-managed company.
Glaston Corporation's General Counsel and SVP HR Taina Tirkkonen crystallizes it well:
"In an acquisition situation, the fact that the target company has all the due diligence data and documents easily accessible and shareable, gives me immediately an overall feeling that it is a well-managed company. It also brings more confidence into the starting phase of the co-operation, helps us in the actual evaluation, and in many cases increases the value of the company."
The company value is an important measurement for any business owner or company. Unfortunately too many companies weaken their value by letting contracts and other legal and administrative documents be disorganised - in other words, they are not Due Diligence ready.
Why is the well-organised administration of the most important documents of a company still only a dream for so many? Why are contracts and corporate legal documents still so often all over the place; in various inboxes, old-fashioned filing cabinets, unorganized in the cloud in OneDrive or Dropbox, and in many other document silos - without the relevant metadata that facilitates modern search opportunities?
One major reason for this is that contracts, financial documents and board meeting minutes are handled by heterogenic groups of people who all have their personal ways of storing information. Secondly, companies have year after year failed to provide systems that put users first by making saving, finding and remembering critical information easy and fast enough so that personnel would truly use them.
Contract Management should learn from CRM systems
All of us who are managing contracts have lots to learn from other business functions, for example from sales & marketing. Sales forecast information and acting upon that are often in better shape than handling contracts. My colleague Riitta Raesmaa wrote about it - “What Contract Management should learn from CRM Systems”. Highly recommended reading.
Fuzzy situation with contracts steal lots of precious time, and it often means unnecessary financial and legal risks. Think about your Sales Manager’s inbox and what contract-related stuff is in there? And when he leaves your company…
Advice for contract management chaos
Rob Woodstock, managing director of Accenture for UK and Ireland, describes how the situation looks like from procurement professional’s point of view:
“This fragmented, complex picture of contract management can mean organisations miss opportunities to save money and face increased legal risks. It also leads to difficulties understanding the pricing schedules across multiple contracts. Even for those that are available, a large number are out of date”, he says.
“Adding that there is often no visibility as to when contracts come up for renewal.”
A talented group of board and knowledge network professionals, Boardman 2020 network, recently listed their best advice for the board and governance topics for a growth company. Boardman 2020 composed a checklist with actionable advice, and one of their key recommendations is about keeping the “paper work in shape every day”:
"Make sure that all contracts (both paper and electronic versions) are carefully stored, correctly signed… so that, for example, Due Diligence could be carried out anytime, quickly and easily. This set of materials include: the annual and ongoing financial reporting, minutes of the shareholders’ meetings and board meetings, and meetings of the Executive Committee, all with appendices, as well as customer, employment and other key agreements."
This is a pretty long list of important documents to be managed but the motivation for gathering these is clear: growth of your business, improved customer satisfaction, easier daily work for your personnel, and most importantly; ensuring the growth path for the company value.
One more bonus: safe and secure handling of key documents on every single business day is not only being business savvy and supporting growth, it also drops your stress levels.