Documentation and the Entrepreneur

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Some few years ago, a bank that had acquired another made contact with a small IT company I was associated with. In an aggressive way, the bank demanded for loan repayment it claimed the company owed the bank it had acquired. Apparently, the acquiring bank had fired all the staff of the acquired bank. So even though the records must be somewhere there, the staff of the acquiring bank could not connect all the dots. Or they were testing the waters!

Rightly, the company had borrowed from the acquired bank to make some investments. Even though the transaction had taken place over a decade earlier, the company was able to bring out and present irrefutable documents to the bank to establish that the loan was fully repaid. The matter died a natural death with the bank really shamed.

What saved the day? The company was diligent in its written communications with the acquired bank; There were evidences that communications were duly received by the bank. The bank’s own documents, such as statements of account, which proved the full repayment and other correspondences were also kept and saved. If several of these actions were not taken, the onus could have been on the company, and perhaps be difficult, to prove that the obligation had been discharged.

Sadly, a lot of small businesses neither keep records of their own operations nor appropriate documents with third parties. This can be a grave error and should be avoided.

What is documentation? Duhaime’s Law Dictionary defines ‘document’ as ‘any written thing capable of being made evidence no matter on what material it may be inscribed…’. It went on to explain that ‘Document has an extended meaning and includes a photograph, film, recording of sound, any record of a permanent or semi-permanent character and any information recorded or stored by means of any device’.

Documentation is about recording and keeping some information in a permanent or semi-permanent form for the purpose of being able to retrieve it at some point in the future as may be needed. In simple terms and for our purpose, a document is any written or printed instrument that conveys certain information.

Importance of documentation:

Legitimacy: The first benefit of documentation is that it gives legitimacy to your business. Depending on what your business is, you may necessarily need some registration with, say Nigeria’s Corporate Affairs Commission. Without that, you don’t even have the legal basis to run the business. Similarly, you may need other compliance documentation with some other regulatory authorities.

Eliminates ambiguity: Raising funds from angel investors; employing your staff; selling your goods to your customers; borrowing money from your bank, etc., would all require certain documentation. No matter how simple some contracts might seem, creating and keeping documents eliminates many likely ambiguity. Without appropriate record, disputes can easily arise from the most innocent terms that seemed unlikely at the beginning.

Creates opportunities: Keeping appropriate documents demonstrates that the entrepreneur is diligent and on top of their business. If your sales records are clear and up to date, for instance, your supplier can use it as a basis to extend trade credit for or your bank can extend an invoice discounting facility if your accounts are kept appropriately.

Establishes and protects your integrity: Records protect both you and your business partners. Whilst some contracts might not seem complicated, documents establish the transparency and commitment of all parties to live by the agreed terms.

Provides basis for enterprise governance: Regardless of your scale of business operations, you need some level of corporate governance to establish procedures and control. Your employees need this to build operational discipline and you need it to ensure the integrity of processes.

Saves money and inconveniences: As with our experience mentioned earlier, proper documentation can save you embarrassments, inconveniences and even tons of money.

Types of documents:

Basically, we can group documents into two; internal and external. As it suggests, internal documents refer to those documents that are strictly internal in their intent and use. They include business plans, operating procedures, etc. External documents, on the other hand, are those that involve third, or external parties. They include proposals and quotations to customers; loan agreements with banks, non-disclosure agreement with a consultant, etc.

In general, documents would include, regulatory approvals, employee appointment letters, employee agreements, minutes of meetings (both internal and external), safety manuals, draft of supply contracts, etc.

‘Documents’ could come in various forms as mentioned earlier. Different forms of documents might carry different legal weights. It is important for the entrepreneur to understand when, for instance, photocopies and soft copies may suffice and when hard and original documents are necessarily required.

Keeping records:

The discipline to keep records must be entrenched enterprise wide. This can be done through:

  1. Starting with the right philosophy by understanding that everyone is involved in some way in helping to keep records. The responsibility is company-wide and staff should be made aware.
  2. Training your staff to both understand the need to keep records as well as how records are kept in different scenarios.
  3. Training your staff to develop and use documents as may be required in different situations and scenarios.
  4. General and daily documents, such as receipts, invoices, delivery notes etc can be standardised and generated. Other more complex documents, such as supply contracts, could be adapted from standardised formats. The more complex a contract the more senior staff and professional legal advise should be involved.
  5. Ensuring that standard operating procedures are documented and staff are trained to understand them.
  6. Making it possible for staff to use internal documents, on a need to know basis, keep records on accessible and simple formats.
  7. Ensuring that records and documents are kept clearly in a way and format that all users will understand it. The Bhopal tragedy in India that killed thousands was traced to, partly, the fact that safety instructions were in English for a workforce that predominantly spoke and read only local languages!
  8. Ensuring that certain documents are always acknowledged by receipients or that there are other evidences to prove that they have been received. Where documents are forwarded in soft copies such as by email, a subtle request to confirm receipt can be made to the receipients.
  9. Safe-keeping documents is another critical aspect of documentation. It is not sufficient to prepare and have appropriate documents. It is equally critical that they kept safely and protected from the elements, rodents and risks such as flood, fire etc.

There are a lot of modern document management applications that can help you keep and track your documents whilst saving on expensive real estate. Discuss with your IT professional and you can work our something reasonable within your budget.

In keeping your business documents, it is always safer to err on the side of caution.

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