What a data room is and how to prepare one for a deal

A data room is an organised folder of documents that a buyer or investor studies during due diligence. The tidier it is, the faster the review goes and the fewer reasons there are to ask for a discount.

What usually goes in

• corporate documents: founding documents, licences, the register of owners, minutes;
• finance: statements for 2–3 years, monthly data, breakdowns of large items;
• tax records and bank statements that reconcile with the accounts;
• customers and contracts: the largest customers, key contracts, termination terms;
• team: structure, key employees, employment contracts;
• assets, leases and liabilities, including debts and guarantees;
• disputes and claims, if any.

How to organise it

• one folder structure, numbered by section;
• one file is one document, with names that need no explanation;
• current versions only, no duplicates or drafts;
• the numbers in the accounts and in the exports match.

Access and confidentiality

A buyer is usually shown an anonymous profile of the business first. Full access follows a non-disclosure agreement, and sections are opened in stages: general data first, then finance and contracts, and sensitive documents last.

Mistakes that cost money

• the numbers differ between documents;
• the owner’s "personal" expenses are added back to profit without evidence;
• licences or contracts have expired;
• the folder is assembled on the day the buyer asks for it.

It is better to prepare the data room in advance. You see the weak spots while they can still be fixed, and you enter negotiations calmer.