You agree on a price, sign the LOI, and feel like the hard part is over. It isn’t. Due diligence is where a buyer pressure-tests every claim you’ve made, and it’s where deals quietly get re-priced or fall apart. The good news: diligence is predictable. Buyers look at the same categories every time, and the owners who breeze through are simply the ones who found their own weak points first. Here’s what they’ll dig into.
Key takeaways
- Diligence is where the final price is really set, surprises here re-trade or kill deals.
- It’s predictable. Buyers examine the same five areas every time, so you can prepare every one of them.
- The deal-killers are concentration, owner-dependency, and numbers that don’t reconcile, fixable if you start early.
- Run diligence on yourself before the buyer does, find the landmines while you still control the timing.
Why diligence makes or breaks the final price
An LOI price is conditional, it holds only if everything checks out. When diligence turns up a surprise, the buyer doesn’t walk away politely; they re-trade, chipping the price or adding conditions, usually when you’ve already mentally spent the money and lost leverage. Preparation is how you keep the price you agreed to.
Financial diligence: proving the earnings are real
This is the core of it. Expect the buyer to:
- Reconcile your financial statements to your tax returns and bank statements, line by line.
- Scrutinize every add-back, undocumented ones erode trust in the entire P&L.
- Test revenue recognition, margins over time, and one-time versus recurring income.
- Examine working capital, because it sets the level of cash that has to be left in the business at close.
Customer and revenue diligence
Buyers want to know the revenue is durable and not about to walk out with you:
- Customer concentration, how much rides on your top few accounts.
- Contract quality, recurring and contracted revenue versus one-off work.
- Churn and tenure, do customers stay, and why.
- Whether the relationships belong to the company or to you personally.
Legal and contracts
The legal review looks for anything that could become the buyer’s problem:
- Whether key contracts, leases, licenses, and permits actually transfer (or have change-of-control clauses).
- Any litigation, disputes, or regulatory issues, past and present.
- Clean ownership of the company, IP, and the assets being sold.
- Employment agreements, and any liabilities hiding in them.
Operations, people, and the owner-dependency test
Finally, the buyer assesses whether the business actually runs, and whether it runs without you. They’ll look at your team and key-person risk, your systems and processes, the condition of equipment and facilities, and supplier dependencies. The quiet question behind all of it is the same one that set your multiple: how much of this business is you?
The deal-killers, and how to defuse them early
A handful of issues sink the most deals. Defuse them before you’re in diligence:
- Financials that don’t reconcile, fix the books a year ahead.
- A single customer who is too large a share, diversify or be ready to explain the stickiness.
- Total owner-dependency, build the second layer now.
- Undisclosed problems, surface them yourself; a known issue is manageable, a discovered one is a betrayal of trust.
Run your own diligence before they do
The single best preparation is to put yourself in the buyer’s chair months ahead and ask the hard questions first. Every landmine you find on your own schedule is one that can’t blow up the deal on theirs. It’s also far cheaper to fix a weakness quietly than to defend it under the spotlight of a live transaction.
Serava runs a private, confidential buyer-fit check, see how a buyer will assess your business, and whether active buyers match it, before you ever enter diligence. Start at serava.ai/sell.
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