When someone says they want to do due diligence on your company, odds are you are either trying to raise money or trying to sell the business. If this is not the case then be skeptical about what you provide and make sure you don’t give too much information away. But if this is the case; that you are trying to “exit” or get money then expect to open the kimono. Now I’m not saying you have to reveal all your secrets and by all means make sure you have a non-disclosure in place before sharing any information. If you don’t have one then you can find one in our forms on our website at http://financepinnacle.com/resources/useful-tips-templates/.
Once you have an NDA in place you should expect them to ask you for all kinds of information including a company overview or presentation, your financial statements, tax returns, corporate formation documents, employee info or organizational chart, customer information, expense details, operational information, process, product, and marketing information, contracts, and on and on until you almost want to throw up.
Be assured this is normal however I always say it is important to make sure that you present everything in the most positive light possible. If you aren’t sure if something is being presented in a positive way then ask a trusted adviser or and employee who is familiar with the information. However, I am also careful to never tell an employee unless they are an owner or very senior why I’m requesting the information. In fact I often lie, well let’s say fib as to why I’m requesting information. Not because I don’t trust my people but some people get very nervous when sensitive data is being shared and they can assume the worst. We are generally nervous creatures, though entrepreneurs tend to be less so, and nerves lead to fear, and freaking out, and a whole lot of employee issue.
I’m also careful about what and how I share information. You can always choose to not share information. If they request it you can ask “why” or you can say “I’m not comfortable sharing that level of information” or you can say “I’d like to defer sharing that until later in the process”. Sometimes I avoid sharing data until “confirmatory diligence” occurs which means you have a term sheet and they are willing to move forward but have a few last boxes to check off. As a side note I never share customer or employee detail with any party that competes with me in any way. I may say “Employee 1 or Customer 1, 2, 3 etc.” if I need to share that level of data.
At the end of the day what you share is your decision but be aware that sharing too little will often lead to a deal not getting done and sharing too much may be dangerous in the present or future. So be mindful and careful and think about the level of info you divulge to others and good luck on your next round of due diligence.