Operating histories: Overview, definition, and example
What are operating histories?
Operating histories refer to the records or documentation that detail a company’s past business operations, activities, performance, and growth over time. These histories often include data on revenues, profits, operational challenges, key milestones, and any changes in the business's structure or strategy. Operating histories are essential for evaluating the stability, success, and trajectory of a company. They provide stakeholders, such as investors, lenders, and business partners, with insight into how the company has performed and managed its operations in the past.
For example, a company’s operating history might include information about its founding, major product launches, financial performance year over year, and any significant events like mergers or leadership changes.
Why are operating histories important?
Operating histories are important because they help stakeholders assess the performance and risk associated with a business. Investors use operating histories to gauge the company’s financial stability, consistency, and growth potential. Lenders may rely on this history to evaluate the company’s ability to repay loans. Additionally, having a well-documented operating history can help businesses plan for the future by identifying trends, operational inefficiencies, or opportunities for improvement.
For businesses, maintaining a comprehensive operating history helps ensure transparency and can strengthen their credibility in negotiations, partnerships, and financing.
Understanding operating histories through an example
Imagine a startup that has been in business for five years and is seeking funding for expansion. The startup provides potential investors with its operating history, including its revenue growth each year, the introduction of new products, and key achievements like securing major clients. This history shows the investors that the business has steadily grown, overcome challenges, and has a proven track record of success, making it a more attractive investment.
In another example, a company applying for a loan may provide its operating history to a bank, which reviews the company’s financial performance, such as annual sales, profit margins, and any periods of significant growth or downturn. The bank uses this history to evaluate the risk involved in lending money to the company.
An example of an operating history clause
Here’s how an operating history clause might look in a business agreement:
"The Company agrees to provide a detailed operating history for the past five years, including annual financial statements, records of product launches, and any significant changes to its business operations. This information will be used to assess the Company’s financial health and operational performance for the purposes of this Agreement."
Conclusion
Operating histories are essential for understanding a company’s past performance and its ability to manage operations effectively. These records help investors, lenders, and other stakeholders assess a business’s stability and potential for future success. By maintaining and sharing an accurate operating history, businesses can build trust, secure funding, and improve their decision-making process.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.