Back to Blog

Proper and Consistent Contract Management Vital for Due Diligence


Most companies are bound to go through a due diligence investigation at some point, and this is particularly true for startups. It doesn’t matter whether a company has been through the due diligence process dozens of times or is experiencing it for the first time, it can be a downright daunting experience. Some due diligence investigations will drag on for months on end, and the request for documentation often seems never-ending. However, with the right preparation and organization, a due diligence investigation can be a relatively hassle-free, even routine course of action.

Normally, the parties in charge of a due diligence investigation will need to inspect documents relating to any and all of a company’s financial and legal matters. This is usually the case irrespective of whether the due diligence investigation is conducted prior to a funding round, potential merger, or proposed acquisition, as well as most other business transactions. Given that the general purpose of a due diligence is to ensure that the company under scrutiny is financially sound and free of legal or other impediments that may diminish its value, companies should expect to divulge quite a bit of information throughout the process.

Although some due diligence investigations can seem intrusive, it is the responsibility of those performing the investigation to examine all of the pieces of the puzzle. The principal goal is to ensure that it is worthwhile to invest time and money into the particular company undergoing inspection. After all, virtually all business transactions are ultimately concerned with the bottom line.

With respect to the examination of legal matters during the due diligence process, companies often assume that this merely entails disclosure of pending arbitration, litigation, or other legal or governmental proceedings. However, there are so many other potential legal consequences that may not be active at the time of the due diligence investigation but can arise at a later time. In some cases, there is no way to foresee such an event.

In many other cases, prospective investors or purchasers can glean this information, to some degree, from a company’s contracts. These contracts may be between the company under scrutiny and banks, clients, vendors, or suppliers, among many other possibilities. It really doesn’t matter with whom the company has contracted or what the contract covers. Rather, it is the mere existence of such contracts that opens the company up to liability, which can lead to disastrous consequences for its investors.

In light of this, proper and consistent contract management is vital for any company that is likely to undergo a due diligence investigation, regardless of whether the process will occur in the near or distant future. By implementing a contract management system, a company can be ready to furnish requested information quickly. In addition, by utilizing an online contract management service with strict security standards, a company can ensure that valuable information is protected. Plus, most online platforms allow for easy filing, organizing, sharing, and monitoring. The key is to select a service that employs data encryption, access control, customizable alerts, permissions-based roles, and audit logs. These features, along with attentive and habitual monitoring of company contracts, will mitigate the likelihood of compliance issues, breaches, or other actions that will negatively impact a company and possibly derail a due diligence investigation.  

New Call-to-action