Due diligence is where the price you agreed is tested. The buyer's accountants, lawyers and advisers work through your business looking for anything that makes the profit less reliable or the risk higher than they assumed. Every gap they find is a reason to reduce the price, add protections or walk away. The owners who come through it best are the ones who answered the questions before anyone asked.
The Diligence Readiness Checklist
Members of the Harvest Intensive leave with the full Diligence Readiness Checklist: a working spreadsheet that lists what a buyer is likely to ask for, why they ask and how urgent each item is, across ten folders, with a readiness summary that updates as you work through it. Below is what each folder covers.
The ten folders
- General background: who the sellers are, what the business does, its history, your plans, your largest customers and suppliers.
- Financial: statutory and management accounts, forecasts, borrowings, and the evidence behind your adjusted profit.
- Tax: returns, correspondence with HMRC, and any open enquiries or risks.
- Industry: your market, competitors and position.
- Management: who runs what, and how the business works without the owner.
- HR: employment contracts, pay, pensions, disputes and key-person dependencies.
- Assets and services: property, equipment, IT, intellectual property and insurance.
- Material contracts: customer and supplier agreements, especially change-of-control clauses.
- Corporate information: constitution, share register, board minutes and filings.
- Licences and regulatory requirements: permits, compliance and anything a new owner must keep in place.
Where deals most often go wrong
- Profit that cannot be evidenced, especially add-backs. See add-backs.
- Contracts that are not in the company's name, or that let a key customer walk away on a change of ownership.
- Intellectual property owned by the founder or a contractor rather than the company.
- Tax issues discovered late, which lead to indemnities, retentions or a lower price.
- A business that depends on the owner, which turns into an earn-out. See earn-outs.
When to start
Before you speak to a buyer. Once exclusivity starts, the clock runs in the buyer's favour, and every document you have to create from scratch is time and leverage lost. Start with the general background and financial folders, and read business exit planning for where the data room fits in the wider plan.
Common questions
What is due diligence when selling a business?
Due diligence is the buyer's investigation of your business before they commit: financial, legal, tax, commercial and operational. It usually happens after heads of terms are agreed, and it is where problems most often lead to a lower price or a lost deal.
How do I prepare for due diligence?
Build a data room before you go to market: an organised folder holding every document a buyer is likely to ask for, with gaps identified and fixed early. The ten folders on this page are the place to start. Members of the Harvest Intensive work through the full checklist, item by item.
General information to help you prepare, not tax, legal or financial advice. Rates and rules change; check the current position and take advice on your own circumstances.
