What Happens During Due Diligence?

Accepting an offer is a big milestone, but it isn't the finish line. Next comes due diligence, the period when the buyer confirms that the business is what they believe it to be. It's often the most demanding stretch of a sale for the owner.

Knowing what to expect makes it far less stressful, and preparation can keep the deal on track.

What due diligence is for

A buyer's offer is based on what you've told them so far. Due diligence is how they verify it. They want to confirm that earnings are real, that there are no hidden problems, and that the business will keep running after you step back.

Most findings are routine. But surprises can lead to price changes, new conditions, or a deal falling apart, which is why getting ahead of issues matters.

What buyers usually review

Financial - Three or more years of financial statements and tax returns - Monthly results for the current year - Bank statements, accounts receivable, and accounts payable - Support for any add-backs or adjustments - Debt, leases, and other obligations

Operations - How work is sold, scheduled, and delivered - Equipment and vehicle lists with condition and age - Key vendors and supplier terms - Software and systems

Customers - Revenue by customer and customer history - Contracts and service agreements - Customer concentration and retention

People - Organization chart, roles, and pay - Employee handbooks and policies - Key employee agreements and any non-competes - Payroll records and worker classification

Legal and compliance - Company formation documents and ownership records - Licenses, permits, and insurance - Leases and major contracts, including whether they can be transferred - Any past or pending lawsuits, claims, or regulatory issues

How long it takes

Timelines vary with the size of the business and how organized the records are. Many small and mid-sized deals spend somewhere around one to three months in due diligence. Well-prepared sellers often move faster.

How to make it go smoothly

• Prepare before you sell. Organize documents in a secure online folder ahead of time.
• Respond quickly. Slow answers can make buyers nervous and drag out the timeline.
• Disclose problems early. An issue you raise yourself is far easier to work through than one a buyer discovers.
• Lean on your advisors. Your CPA and attorney can handle many requests directly.
• Keep running the business. Owners sometimes get so focused on the sale that results slip. Buyers notice.

What can come up

Common issues include add-backs that aren't well documented, contracts that need customer consent to transfer, worker classification questions, deferred equipment maintenance, and revenue that dips during the process. Most can be resolved with clear communication. Some lead to adjustments in price or terms.

After due diligence

When the buyer is satisfied, the attorneys finalize the purchase agreement, financing is completed, and the deal moves to closing.

A straightforward process

At Legacy Lion Reserve, we keep due diligence focused on what matters and respectful of your time. If you'd like to understand what the process would look like for your business, let's talk.

This article is for general education and is not legal or financial advice.