Be prepared, be proactive, be honest
For business owners preparing to sell, “due diligence” is often the most daunting phase of the exit process. Suddenly, a team of accountants, lawyers, and advisors is picking through your business’s financials, contracts, systems, and history with a fine-tooth comb. If you’re unprepared, it can feel invasive and stressful. If you’re ready, it becomes a valuable opportunity to prove your business’s worth and accelerate the deal to completion.
So what is buyer due diligence and how can you, as a seller, turn it from a roadblock into a springboard for a successful exit? Here’s a seller-friendly guide, drawing on real-world experience and the principles of The Exit Roadmap by Chris Spratling.
1. What Is Buyer Due Diligence?
Buyer due diligence is the process by which a prospective acquirer thoroughly investigates your business before finalising the purchase. It’s designed to verify that your claims stack up, uncover risks, and ensure there are no hidden surprises.
Typical areas of focus include:
- Financial records (profit & loss, balance sheet, cash flow, forecasts)
- Tax filings and compliance
- Contracts (customers, suppliers, employees)
- Legal matters and intellectual property
- Operations, IT systems, and processes
- Customer and supplier concentration
- Regulatory and environmental compliance
The process is rigorous because buyers want to protect their investment and in today’s market, their lenders, partners, and investors demand it.
2. What Are Buyers Really Looking For?
From a seller’s perspective, it helps to see due diligence through the buyer’s eyes:
- Truth and Transparency: Are your numbers accurate and your representations honest?
- Risk and Liability: Are there hidden financial, legal, or operational risks?
- Growth and Opportunity: Is there evidence of sustainable profits and future potential?
- Smooth Transition: Are systems and people in place to ensure continuity after the sale?
Buyers want assurance, not just optimism. The more you can provide evidence, clarity, and answers, the stronger your negotiating position.
3. How to Prepare for Due Diligence as a Seller
Start early – long before buyers enter the picture.
- Get your house in order: Clean, accrual-based financials, up-to-date contracts, clear records of all key business relationships.
- Conduct a pre-sale audit: Have your accountant or an advisor review your business as a buyer would.
- Create a data room: Organise all documentation – digital and paper – in a secure, easily accessible place.
- Address skeletons now: If there are issues (tax, legal, customer disputes), be proactive about resolving them or at least being upfront.
During due diligence:
- Respond promptly to information requests – delays breed suspicion.
- Be transparent about any weaknesses or past issues, and explain how they’ve been managed.
- Maintain business performance – don’t let day-to-day operations slip.
4. Common Pitfalls—and How to Avoid Them
- Inaccurate or incomplete information: Causes mistrust and delays. Triple-check your numbers and documentation.
- Surprise liabilities: Unresolved lawsuits, unpaid taxes, or missing contracts can kill deals late. Disclose early and prepare a plan.
- Lack of documentation: Buyers need evidence. Have contracts, policies, and compliance records ready.
- Overpromising: Be realistic in your forecasts and claims. It’s better to under-promise and over-deliver.
5. Turning Due Diligence into a Value-Builder
Well-prepared sellers often find that due diligence is a chance to showcase the business’s strengths. A well-organised, transparent, and responsive approach:
- Builds trust with buyers
- Reduces negotiation friction
- Can even enhance valuation by removing perceived risk
Think of due diligence not as a hurdle, but as your final pitch for why your business is worth every penny.
Final Thoughts: Be Prepared, Be Proactive, Be Honest
Understanding buyer due diligence and preparing for it early-turns a potential deal-killer into a powerful asset. When you’re ready, you send a strong message: your business is everything you claim, and more.
Your Exit Starts Here
If you’re wondering whether you’re truly ready to sell, don’t leave it to chance. Take the Exit Readiness Survey today at www.chalkhillblue.org/exitreadiness-survey and get a clear picture of where you stand, and what to do next.
Looking for the complete roadmap to a successful exit? Order The Exit Roadmap by Chris Spratling on Amazon – a practical, step-by-step guide for ambitious entrepreneurs ready to maximise value, minimise stress, and exit on their own terms.
For more insights and real-world advice, follow Chris Spratling on LinkedIn. Start your journey to a successful exit with clarity and confidence.
