I had the sad task of mentoring a team whose founder and CEO had recently died unexpectedly. That’s about all I can share with about this mentoring session as I’m bound by a blanket NDA I’ve signed with MIT Venture Mentoring Service. But what I can share with you is a brief categorized list of the major elements of your startup’s operations that you as a founder should document just in case anything dire should happen to you.
Your lawyer and/or accountant can help you flesh out this summary list.
Key Contacts List
Surviving colleagues are going to have a lot of questions and while documenting your operations should answer many of them, there is no substitute for a list of key contacts: the company lawyer, company accountant, all investors, advisors, consultants, vendors, and important customers. Keep this up to date and backed up! In fact that goes for all documents regarding the company’s founding and operations.
I hope you are keeping track of your finances with a program like Quicken. The most important thing your colleagues need to know is Cash On Hand, the actual amount of money in your bank account and petty cash, if any. But it’s equally important for them to know accounts payable – the money you owe to vendors and creditors and when those payments are due; accounts receivable – the money customers and others owe you and when those payments are due; the balances due on any loans or progress payments; and any incoming payments from investors. And please make sure that you are not the only signee on the company’s bank account(s)!
Ideally you should have an up to date set of financial statements: income statement, cash flow and balance sheet, especially if the venture will continue on with the founder. Financial statements should be generated every month. If you aren’t familiar with all this stuff – and many engineers and scientists are not – hire an accountant to set up your books on Quicken or whatever your finance package is, and teach you how to use it. Someone in the organization will have to handle actually paying the bills and depositing any income, if any. For pre-revenue companies life is pretty simple; once you start generating revenue things get more complicated.
If you have investors you should have a cap (capitalization) table showing the stock ownership of every individual with stock or stock option along with copies of their stock agreements.
More mature companies will have insurance policies, whether D & O (Director and Officers), “Keyman,” or general theft and damages policies. The payments of premiums on these policies should be part of your General Ledger – the list of operating expenses.
Surprisingly to me, many early stage companies haven’t gotten around to establishing a business entity, typically a corporation, either an LLC or C-Corp, occasionally an S-Corp. Whatever it is your lawyer should have the original paperwork and you should have a copy in your office. If you haven’t quite gotten around to this I hope you have a least a founders’ agreement, stored in an easily accessible place digitally and on paper.
Most ongoing companies have contracts, or some sort, be they the lease on your office or contracts with vendors with whom you do business. Keep a file on every company or individual you do business with or have done business along with any contracts with them.
If you are a tech company you no doubt have secrets to protect, which means signed NDA (Non-disclosure Agreements). And partners may have required you to sign NDAs as well. The best practice is to store all originals at your lawyer’s office – the paper copies and store digital copies on your server.
More mature companies will have patent applications, trademark applications, and lots of other legal documents. If you make a practice of storing a copy with your lawyer and another copy – usually a digital one – at your office, your colleagues should have no trouble following in your footsteps. And while you may think the odds of your founder dying are vanishingly low, the odds of selling the company are much higher. Keeping a very tight ship by following these documentation guidelines will make due diligence by future investors or acquirers far easier.
At minimum you need contact data for all employees, contractors, and consultants along with their signed NDAs and stock agreements, as appropriate. If your company conducts performance reviews those should be stored along with any other relevant information.
The more mature the company typically the more documents and operations information that needs to be captured, stored, and made easily retrievable. But for even early stage startups the sooner you start documenting your operations the better.