Most sellers we work with assume due diligence is a straightforward process that mostly involves reviewing financials.
It often comes as a shock when they realize just how time-consuming and intensive the process becomes.
Due diligence is a full-scale examination of your business, all while you still have to run the company day to day.
In this week’s newsletter we’ll break down what surprises business owners most during diligence, and how to prepare for it.
We’ll cover:
- 3 insights on what catches sellers off guard
- 2 frameworks to understand how diligence works
- 1 action step to prepare now
3 Insights About Due Diligence
1. The biggest surprise is the volume of requests
Many owners expect buyers to review financial statements and contracts, but sophisticated buyers conduct a much deeper review of your business.
It’s common for buyers and their advisors to request hundreds of documents and follow-up explanations covering a wide range of areas.
The challenge is that these requests often arrive while the owner is still running the business. It becomes less about answering one question correctly and more about keeping up with the pace and volume of requests.
2. Buyers examine more than financials
During due diligence, buyers evaluate your entire business. They are trying to understand how the business operates and whether earnings are sustainable after the transaction closes.
It’s common for buyers to request information related to financials, customer relationships, payroll, and operational processes.
Issues can arise in any one of these areas. Even small gaps or inconsistencies can slow the transaction or create points of negotiation.
3. Diligence becomes a second full-time job
Responding to diligence requests, gathering documents, and coordinating with advisors adds up quickly.
At the same time, the business still needs to perform. Customers expect the same service and revenue needs to stay consistent.
Balancing diligence on top of running the company can feel like managing two jobs at the same time.
2 Frameworks to Understand Diligence
Colonoscopy Without the Drugs
This analogy might seem a bit crude, but I use it to explain what diligence is like for business owners. Buyers will review nearly every part of the business.
The process can feel invasive at times. However, it’s important to remember that many buyers are not trying to create friction. They are trying to reduce uncertainty and protect their investment.
The Monthly Performance Trap
One of the biggest mistakes sellers make during due diligence is diverting their attention from the business itself. While the transaction may become the primary focus emotionally, buyers are still watching the company’s performance closely throughout the process.
If performance dips during this period, even temporarily, it can shift the buyer’s perception of the business.
List of Our Completed Transactions
1 Action Item This Week
Start building a due diligence folder with key documents today
This can be as simple as a structured Google Drive or shared folder.
Include items such as financial statements, tax returns, and vendor contracts which might be requested during diligence.