Virtual Data Rooms and Due Diligence: 4 Mistakes to Avoid

 It is necessary to avoid typical mistakes to successfully implement a virtual data rooms comparison into a company’s due diligence workflows. So, this article will explain how to organize the audit in the online format and the common mistakes.

Due diligence audit with the help of an online data room

The top management needs reliable information about the real state of the business and its financial condition, that is, the result of the due diligence procedure to decide on transactions. The process implies a system or a set of operational and analytical measures aimed at a multifaceted verification of the commercial attractiveness of an object. Their goal is to avoid or maximize the reduction of existing entrepreneurial risks.

When companies organize the audit, they first set up a virtual data room to ensure secure access to business-critical data for all participants. This cloud platform provides a well-protected data warehouse and comprehensive, collaborative workspace. The online data rooms ensure many advantages for the due diligence participants and simplify the data exchange process.

Common mistakes in the due diligence data room use 

Any workflow system, regardless of its complexity, has a set of characteristics that must be considered when determining the system’s requirements. For example, during the operation of the unsuitable data room vendor, it may turn out that the purchased product does not support the expansion of functionality, has large amounts of data, and has deterministic logic or security problems. So, when implementing the data room, organizations face some difficulties. Therefore, we are going to analyze four common mistakes during due diligence data room implementation:

  1. Lack of planning and identifying optimization potential

A well-developed plan helps foresee the prospects of the data room realization. The initial question you should always ask yourself is: What types of documents and files are there? And how do they migrate through the company/organization, or who uses and files them? The clear advantage of this approach: it is easy to determine which processes and filing plans are the least efficient and where there is the greatest potential for optimization. In other words, you learn where the pain is greatest. It is the starting point for data room implementation.

  1. Choosing the wrong software provider

The IT market presents many data room solutions with various functions, services, and plans. Sometimes companies can choose vendors that, as a result, are not suitable for them. It turns out that the company cannot get full benefits from the software, which may lead to a loss of money and time. Thus, after choosing a product, it is necessary to work out those business processes that will be automated, test the data room in operation, and identify all the shortcomings. The pilot project allows you to ensure that the solution meets the objectives.

  1. The absence of the project administrator

When introducing the data room, a company must have an employee fully responsible for the process: sufficient authority, the right to make decisions, and clear criteria for evaluating results. Without a responsible person, the process will take its course, and no one will monitor the results and make the necessary adjustments. 

  1. The online transition of all types of documents at once

Trying to convert all existing due diligence data into electronic form at once is an extremely risky path. If it fails, all processes will suffer. It is better to start with one type of document – for example, with acts of work performed. Then, it is worth moving to the next view only after analyzing what happened and what didn’t, considering the errors that have arisen.