You’re in the home stretch of the M&A process. Due diligence can be demanding, but with the groundwork you’ve put in, you’re ready for it.

 Due diligence is the buyer’s deep dive into your business. It’s where they look under the hood, behind the curtain, and under every floorboard. Their job is to validate everything you’ve told them and to uncover anything you haven’t.

It’s intense, it’s time-consuming, and yes, it can feel personal. But if you go in prepared, you’ll maintain leverage, avoid deal fatigue (when you get burnt out because the deal is dragging on and on), and keep things moving toward a successful close.

First...

what is due diligence?

Think of it like a home inspection before buying a house. Except instead of checking the plumbing and roof, the buyer is inspecting your:

• Financials (down to the penny)

• Legal contracts

• Customer data

• Environmental reports

• Team structure and compensation

• Insurance policies

• Tax returns

And just about everything else you’ve ever touched in the business.

You’ll be asked for everything from three years of bank statements to your employee handbook to your top customer contracts. And yes, you do need to disclose all of it.

The process typically lasts 4–12 weeks and can feel like a full-time job on top of running your business that hasn’t sold yet. But if you anticipate the pain, you can manage it.

There are usually three primary diligence “tracks” happening all at once:

1. Quality of Earnings (Q of E)

This is the buyer’s forensic accounting review. They’ll verify your EBITDA, analyze trends, spot anomalies, and ensure your numbers are clean, accurate, and repeatable. Expect them to ask about:

• Revenue recognition policies

• Customer churn

• Non-recurring expenses

• Seller add-backs

• Working capital fluctuations

If your books are messy (which is unlikely if you’ve gotten to this point), this is where the deal can die. Get them cleaned up long before you ever go to market. It makes your life easier and your business more efficient to run and sell. 

2. Legal Diligence

This covers your contracts, IP, leases, ownership structure, employee agreements, litigation risk, and more.

Red flags for buyers include:

• Expired contracts

• Unclear ownership (especially if partners or family are involved)

• Ongoing or potential lawsuits

• Missing employee documentation 

A great M&A lawyer is worth their weight in gold here. 

3. Environmental Diligence (if applicable)

This is common for businesses in manufacturing, construction, or any industry with physical assets or land. Expect requests for Phase 1 or Phase 2 environmental reports, especially if the buyer needs financing. 

It’s easy to get defensive when you think about sharing all of this sensitive information. You may wonder if they really need the documents they’re asking for, or why they ask the same question three different ways.

But usually, it’s not that buyers are trying to annoy you or grill you into slipping up. They’re trying to eliminate risk on their end because they’re about to sink millions of dollars into what absolutely needs to be a well-informed decision.

Remember that the smoother you make diligence, the more confident they become and the less likely they are to retrade the deal or walk away. 

A few best practices

• Create a data room: An advisor can help you with this step. Share documents in a secure, centralized location with clear labeling and version control.

• Appoint a point person: Ideally, someone internal who manages the flow of information and shields you from distraction. They need to be able to hold onto sensitive information (like the sale of the company) without divulging this information before intended.

• Keep records updated: Don’t wait to be asked. Proactive sharing builds trust and reduces friction.

• Stay calm and responsive: No buyer ever raised their offer because you were rude or uncooperative during due diligence.

Due diligence can be tedious, but it’s a necessary gateway to a life-changing outcome. 

Like any aspect of an exit, you don’t have to figure this out on your own. An expert can walk you through the process or offer counsel on best practices:

👉Book a call with an M&A advisor

In the next post, we’ll look at what kills deals (and what gets them across the finish line).