Find Out What Buyers REALLY Check During Due Diligence

Due diligence, what buyers check. It sounds scary, but it's really not. If you're thinking about selling your business, buyers will dig deep before they close the deal. So don't let hidden issues kill your acquisition. Here's what buyers check during due diligence and how to prepare for these things in advance. So to start, what is due diligence? Due diligence is a buyer's deep dive into your business before they finalize a deal. They're looking for things like red flags, risk, and confirmation that your business is what you you guys discussed. All the numbers are correct. There isn't any blazing red issues under the hood. If you're not prepared, deals can fall apart and fast. And for good reason, too. As a buyer, they don't want to be acquiring a business for millions of dollars when there's a bunch of unknown issues going on that they didn't know about. So here's five key areas that all buyers are going to check. Buyers don't just look at your revenue. They essentially analyze everything. Here's what they focus on. Financials. This is the number one deal killer. Buyers want clean, accurate financials. They expect to provide PNLs, tax returns, bank statements for the last three years. One really common issue I see is unclear revenue sources or expenses that just don't add up. Things just aren't making sense. Something just, it's not adding up. And so that is absolutely going to kill your deal. So please avoid that operations. Can your business run without you? Again, with you as the founder, do things just fall apart when you're not there? Because if so, that's going to be a really hard business to get acquired. Buyers are going to ask how much of the business depends on you. Businesses with strong processes, SOPs and a solid team get much higher valuations. One really common issue I see in this area, again, is the owner is the bottleneck. Without them, it's too risky to try and operate the business. And so those deals are really hard to get across the finish line. Legal and compliance issues. These are hidden landmines. So buyers are going to check contracts, IP ownership, trademarks, customer agreements and liabilities. One common issue I see here is missing contracts, disputes, compliance violations, anything that just seems like a legal headache. Buyers are going to have reason for pause and they're not going to be interested in buying the business. Next is customer and revenue stability. So buyers want to see things like recurring revenue, strong retention, low churn, diverse customer base, not having high customer concentration across just a handful of customers, where if one leaves revenue tanks. So that's one big issue that I commonly see is one big customer makes up 50% plus of the revenue, which is just it's too much risk for buyers, especially as they're looking to buy the business and they discover this during due diligence for the first time. If this is your business, disclose it up front just so it's not a surprise. Risk and liabilities is another big one. Buyers look for anything that could cause trouble after they take over. This includes pending lawsuits, high churn, unreliable revenue streams, stuff like that. So how can you prepare for due diligence now? So if you want a smooth acquisition, start doing these things now as soon as you can. These are things that you can do today. Organize your financials. Get a CPA to review your books. This is probably my top tip is just get someone to go over your revenue sources and make sense of them so they're not confusing and it's going to add up when a third party goes to look at them. Document your processes. Create SOPs so buyers see a scalable business and organized business, one that's again easy to understand. Fix legal issues early. Make sure contracts are solid and IP is protected. Diversify your revenue. Reduce any risk by not relying on one big customer. Pro tip here. Buyers pay more for businesses that are easy to take over. You want to think of your business in ways of how can you reduce the risk of this acquisition so a new buyer can take over the business and resume operations like they are today? Due diligence again can make or break your deal. So get ahead of it now. Save this video for later. And if you want a due diligence Checklist from the Acquire.com team, feel free to reach out.