During the process of a capital raise, it is likely you will need to present some documentation for due diligence purposes. The bigger the raise, the more likely you will encounter a more intense due diligence process. This may include a full audit of your company’s legal documents.
I can’t recommend enough that if you haven’t already got a good cloud-based filing system in place, you get one as soon as possible. Developing good habits now could save you from expensive, time-consuming admin work later.
I often come across entrepreneurs who think that written agreements are unnecessary in the early stages of their business. This can be agreements relating to things such as employees, contractors and commercial partners. What is often overlooked is how this kind of thinking may present potential risk issues for future investors.
If you are just launching your startup, I suggest you consider setting up a simple framework from day one. I recommend Google Drive or Dropbox. If you already have something in place but it’s not organised, it’s not too difficult to make some changes. The key is keeping the high-level structure simple and then developing good disciplined habits to maintain it.
How to set up a simple system using either Google Drive or Dropbox
Set up two main folders.
Folder one: Highly confidential. Imagine you have a filing cabinet in your office — this is the one that you would lock and keep private.
Folder two: General admin. This is the folder for the whole team to use.
Folder one is the main focus of a due diligence process — it will need to contain all legal, financial and HR records. I always keep it as simple as possible by creating three sub-folders.
I always think of each of these sub-folders as drawers of a filing cabinet, I guess that’s because I’m old school and I’ve done lots of filing the old way.
Once you’ve created your three main sub-folders then you can create more sub-folders for each one. I find this flow works in all startups that I’ve worked with.
○ Third-party agreements
○ Employee share scheme
○ Bank accounts
○ Sales invoices
○ Suppliers invoices
○ Management reports
Folder two is for general admin. This is where you keep everything else — items that anyone on the team may need to access at any time. Think: R&D product development and shared company policies.
Of course, everyone has their own way of setting things out so there are no hard and fast rules here. This is just an example that might help you to start a filing framework for your business.
The secret is to have a framework in place and then to continually add your documents into the correct folders on a regular basis. If you know you don’t have the discipline to do this yourself, then I recommend that you make it a priority to engage someone who does. I also recommend once you have this in place you provide clarity to your team on the importance of keeping the startup house in order.
This article was originally published on January 28, 2015.