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Due diligence is where deals go to die. Here's what buyers and their advisors are actually looking for when they go through your financials, contracts, and operations.
Once a buyer signs a Letter of Intent, the clock starts. The next 60 to 90 days are due diligence: financial, legal, operational, and commercial. The buyer's team will examine your business with more rigor than it has ever been examined. Sellers who are not ready for this lose deals. Sellers who are ready close on terms.
Financial due diligence focuses on quality of earnings. Buyers test whether your reported EBITDA is sustainable, normalized, and properly recognized. They examine revenue recognition policies, owner add-backs, one-time items, and trends in gross margin. Surprises here are the most common reason deals die.
Legal due diligence covers contracts, leases, IP, employment matters, litigation history, and corporate records. Missing or expired contracts, unfavorable change-of-control clauses, and unresolved employment claims all show up here. Each one becomes a negotiation point or a price reduction.
Operational due diligence asks whether the business can run without you. Documented processes, a competent management team, succession plans, and clean systems all matter. If the business depends on what is in your head, that risk gets priced into the deal.
Commercial due diligence covers customer concentration, contract terms, churn, pipeline, and competitive position. A buyer who finds out your top customer is 35% of revenue and on a month-to-month arrangement will reprice the deal or walk.
The preparation answer is straightforward: assemble all of this before you list. Buyers reward sellers who are ready and punish sellers who scramble. That difference is six figures, every time.
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