What a clean data room actually looks like

The most common diligence finding is not fraud or a hidden liability. It is that the same figure appears three ways across three documents, and nobody can explain which is right within the meeting.

The test a data room has to pass

Any number in the information memorandum should be traceable to a source document in under two minutes. That is the whole standard. Everything else follows from it.

• Statutory records complete and current, including the registers nobody has updated since incorporation.
• A reconciliation between management accounts and filed financials, with differences explained in writing.
• Every material contract signed, dated and in one place, including the ones held on somebody's personal drive.
• Related-party transactions listed proactively, with the commercial rationale stated.
• Tax positions documented with the reasoning, not only the returns.

Disclose the problems yourself

Every business has three or four issues that will be found. Disclosing them at the outset, with a quantified impact and a plan, costs a fraction of what it costs when the buyer's advisor finds them in week six.

Preparation of this kind takes six to twelve weeks. It is best begun before a buyer exists, because once a process starts, the same work has to be done under time pressure and in public.