Due Diligence From the Seller's Side
Due diligence is the period, usually 30 to 60 days after the offer, when the buyer verifies that your business is what you represented. While the buyer runs the process (see how buyers perform due diligence), your job as the seller is to provide accurate information promptly, keep the business performing, and address issues honestly. How you handle diligence has a lot to do with whether the deal closes.
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What the Buyer Examines
Expect the buyer and their advisors (CPA, attorney) to review:
- Financials — verifying your P&Ls and add-backs against tax returns and bank statements
- Legal — contracts, the lease, licenses, litigation, liabilities
- Operations — customers, suppliers, employees, and owner dependency
- Assets — equipment condition and inventory
They're confirming the earnings are real and the business will continue after you leave.
What You'll Provide
You'll respond to detailed document requests and questions — the financial, legal, and operational documents you prepared. The more organized and complete your package, the smoother and faster diligence goes. Vague answers, missing documents, or delays raise buyer concerns and slow the deal. Preparation before going to market pays off enormously here.
How to Come Through It Well
- Be responsive — provide information promptly; momentum keeps deals alive
- Be honest — disclose issues rather than hoping they're missed; problems found after a cover-up kill deals and trust
- Keep running the business — a dip in performance during diligence is a red flag and can lower the price
- Stay calm about findings — some issues are normal and lead to negotiation, not collapse
When Issues Arise
Diligence often surfaces something — a customer concentration, an overstated add-back, deferred maintenance. These don't automatically end a deal; they typically lead to a renegotiated price, an escrow holdback, or adjusted terms. What damages deals is hidden problems that surface unexpectedly. Honest disclosure, ideally up front, protects both the deal and you from post-closing liability. See seller disclosure.
Keep the Business Strong
The most important thing a seller can do during diligence is keep the business performing. Buyers watch closely, and financing depends on continued results. Don't take your foot off the gas because you've accepted an offer, the deal isn't done until closing. Staying focused, responsive, and honest is how you get from accepted offer to closed.
Frequently Asked Questions
What happens during due diligence when selling a business?
The buyer, usually over 30 to 60 days after the offer, verifies that your business is what you represented, examining financials against tax returns and bank statements, legal matters like contracts and the lease, operations including customers and owner dependency, and assets. As the seller, you provide documents, answer questions, and keep the business performing.
What do I need to do during due diligence as a seller?
Provide accurate information promptly from your prepared documents, answer questions honestly, disclose issues rather than hiding them, keep the business performing well (buyers watch closely and financing depends on it), and stay calm about findings, since many lead to negotiation rather than collapse. Being organized and responsive keeps the deal on track.
What happens if the buyer finds problems during due diligence?
Findings don't automatically end a deal. Depending on how material they are, they typically lead to a renegotiated price, an escrow holdback, or adjusted terms. What damages deals is hidden problems that surface unexpectedly, so honest, upfront disclosure protects both the deal and you from post-closing liability.
How long does due diligence take when selling a business?
Typically 30 to 60 days, often overlapping with the buyer's financing. More complex businesses take longer. Keeping your documentation organized and responding quickly to requests helps diligence move efficiently and keeps the deal's momentum.
Facing Buyer Due Diligence?
Martin Navarro prepares sellers for diligence and keeps deals on track through closing. Let's talk, confidentially and with no obligation.
Request a Confidential Consultation Call or text: 818-633-3254 · 365navarro.martin@gmail.com