5 Reasons Why You Should Consider Using A Data Room For Due Diligence

data room for due diligence

Business security requires a professional and comprehensive approach, which the consistent application of due diligence can ensure. But how to conduct it transparently and efficiently? A virtual data room is a perfect solution. Here are 5 main reasons to use this software. 

Due diligence and virtual collaboration

When companies plan to acquire a company or conclude a major deal, they conduct a legal audit of the future counterparty. The due diligence procedure is a set of measures necessary to identify dangerous moments in a transaction. Both counterparties check the consequences of the transaction and whether it is possible to minimize the risks. During due diligence, the activities of the counterparty are analyzed from a legal standpoint, and the state of finances is checked.

Conducting due diligence is a laborious step. The duration of the procedure depends entirely on the size of the company, its operational activity, organizational structure, and field of action – on average, the process takes from several weeks to 9 months. Moreover, it requires the involvement of top-level specialists: lawyers, auditors, appraisers, investment analysts, and consulting agencies to form the most realistic picture that considers all possible risks and potential outcomes of the transaction. So, there is a need to organize a secure collaborative workspace for better interaction of all involved members. In this case, many companies prefer using a data room for due diligence.

The data room is a tool for managing document-oriented business processes that permeate the entire company. Their disorder is especially noticeable in geographically distributed companies with many branches and at the managerial level in any organization. The introduction of the software increases the control over the execution of tasks and reduces the time for coordination, search, approval, and signing of documents. 

5 Main reasons to use data room software in due diligence

There are 5 common reasons to consider implementing a data room provider for due diligence:

  1. Employees lose documents. A long search and subsequent restoration of paper originals can lead to disruption of deliveries and transactions and, consequently, to loss of profit. At the request of contractors or regulatory authorities, it is impossible to find documents stored in paper form quickly. And providing them late leads to fines or delays in receipts. 
  2. Coordination and signing take too much time. The approval cycle has a large circle, and you need confirmation from various departments, from lawyers to the signer of this document. Even under the condition that all interested parties are in the same building, going around them all, getting in at a convenient time, getting consent, and signing a paper is a rather time-consuming task.
  3. Weak control over the execution of tasks. Since there is no single place to fix tasks, an employee can forget the requirements, miss deadlines, or even lose a document.
  4. High costs for printing and storing documents. Every company has an internal document flow and an external one. To entrust storage to outsourcing companies that have to pay for each action with the document – transportation, storage of boxes, search, destruction. The cost of paper, ink, one of the world’s most expensive liquids, and the rent of additional space are significant amounts.
  5. Obscure management of human resources and business processes. Documents can be lost not only in the event of an emergency but also destroyed by an employee. All this implies risks for the organization, both monetary and reputational. Without data room, it is impossible to raise, if necessary, the entire history of actions, track steps and those responsible, and refer to the electronic version.