What a buyer checks in due diligence: a checklist for owners

Due diligence is the buyer’s check of a business before a deal. The better prepared you are, the fewer the questions, the faster the deal and the weaker the buyer’s position to negotiate. Below is what they usually ask to see.

Finances

• accounts and management data for several periods;
• bank statements and proof of revenue;
• tax returns and tax calculations;
• debts, loans and liabilities, including hidden ones;
• normalisation of profit: which costs and income are one-off or personal.

Customers and sales

• the list of customers and each one’s share of revenue;
• contracts, terms and whether they can be transferred to a new owner;
• recurring revenue and customer churn data;
• how the sales process works and where leads come from.

Legal matters

• licences, incorporation documents and proof of ownership of the shares;
• the lease and its terms;
• disputes and claims;
• rights to trademarks, the website and software.

People and processes

• team structure, key employees and the terms they work on;
• documented processes and procedures;
• dependence on suppliers and contractors;
• the owner’s role in the day-to-day work.

How to use this list

Put everything in one structured folder well ahead of the deal, a few months before. Gaps you find yourself cost less than the ones the buyer finds: they price them in or delay the deal.