How To Sell Your Business, Part Six — The Due Diligence Process

by Eddie Davis, Partner at Harvest Business Advisors

We’re now at 90 -120 days into getting your business sold and things have gone as expected. Let’s review what’s happened:

  1. You’re familiar with the “process” followed to sell your business
  2. You’ve identified your advisory team
  3. You’re familiar with the pricing expectations
  4. A market was created and the confidential information was delivered to buyers
  5. The buyer search concluded and you have a signed Letter of Intent (LOI)

Next step: the due diligence process.

 What is Due Diligence?

Included in the LOI (above #5), you agreed to provide the buyers/advisory team, information they request so they can complete their review, ask questions, and fully understand the business before signing a binding purchase contract. This is also a great opportunity for you and the buyer to get to know each other on a more personal level.

Key Points:

  • The diligence process has to be aggressively “managed”.  In general, for small deals it takes 2-4weeks for buyers to complete their diligence; for larger deals it takes 30 – 90 days.
  • Procrastination by either party leads to “deal fatigue” and is a deal killer.
  • The fact is, buyers are searching for hidden “surprises” to “reprice” the offer.  Make sure the information presented to the buyer/buyer’ advisors will withstand their scrutiny.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

 What Happens During Due Diligence?

The buyer/advisory team will deliver a due diligence checklist that contains both non-financial and financial information they want to review prior to signing a final purchase agreement. Depending on the industry, buyers at a minimum will request/review:

  • Non-financial information
    • Business culture – will everyone be able to work together?
    • Corporate minutes, Articles, ownership and registration requirements
    • Lease terms and conditions
    • Real estate appraisals (if applicable)
    • Vehicle repair history and condition
    • Machinery repair history and condition
    • Insurance information (business and employee)
    • Bonding information (contractors)
    • H/R records and related document
    • Key staff history,  job descriptions
    • Pension plans
    • Technology and software applications used
    • Business and personal licenses
    • Franchise agreements if applicable
    • Authorized manufacturers reseller agreements
    • Patents and trademarks
    • Web site and social media use
    • Lawsuit, tax compliance and HR compliance
    • Operations and marketing programs
    • Meetings/communications with key staff and key customers
  • Financial information
    • Accounting records – are proper accounting principles used and consistently followed?
    • Accounts receivable review
    • Accounts payable review
    • Inventory methods used
    • Working capital analysis
    • Unrecorded liabilities
    • Customer sales history and contracts
    • Supplier history and agreements
    • Bank/third party loan documents
    • Financial projections
    • WIP schedules (contractors)
    • Changes that may impact future results
    • Changes in historic trends and financial results
    • Changes in debt and equity balances
    • “Capx” required for new/additional equipment, vehicles, etc.

Key Point:  It’s a given that problems/concerns (between buyers and sellers) will occur during due diligence.  They just will. Don’t panic. It’s a long process.  We’ve been there/done that and will manage it for you.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

Pre-Sale Due Diligence when Selling Your Business

You never know when you might sell your business therefore you should always be doing due diligence so you are prepared to sell your business when the time comes.  In fact, continuing internal due diligence should just be a part of your businesses operating procedures. 

If you are Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Vasilios Peros,Esquire ( recently wrote an article on the importance of pre-sale due diligence when selling your business.

There are many reasons why you might not know when you are going to sell your business including:

  • Health reasons for you
  • Health reasons for a loved one
  • Loss of larger clients or changing market
  • Loss of key people
  • Surprise offer that might make sense
  • Need to re-capitalize
  • A growing aversion to risk
  • “Just Can’t Take it Anymore”

Mr. Peros states, “In conclusion, pre-sale business due diligence is critical to achieving a high sales price and favorable terms.  Surprises resulting from a potential buyer’s due diligence can be detrimental.  Accordingly, pre-sale preparation and due diligence should be made a part of normal operations of a business.  With some budgeting and planning, issues identified can be resolved over a period of time and not at the last minute before a sale.   The outside advisors of the business can perform many of these pre-sale diligence tasks, allowing owners to focus the majority of their time on running their business.”

Click here for full article on due diligence when selling your business.

Greg Caruso

Harvest Business Advisors

Business Brokerage  |  Business Valuation

Maryland  |  New Jersey

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