Insights Exit 8 min read
What a buyer checks in due diligence, in the order they check it
Due diligence is a list, and it is the same list every time. Knowing the order lets you fix the expensive items first.
By the Sightline partners ·
After a letter of intent is signed, the buyer’s advisers have sixty to ninety days to find reasons to lower the price. They are thorough, but they are not creative: the list of what they check is almost identical from deal to deal. That is good news, because you can check it first.
Quality of earnings
The first and most expensive area. The buyer’s accountants rebuild your EBITDA from the ledger, test every add-back, and look for revenue recognised early or costs deferred. A 10% cut to accepted EBITDA is a 10% cut to price.
Working capital
Buyers agree a “normal” level of working capital to be left in the business at completion. If yours looks unusually low in the months before the sale — because you collected hard and paid slowly — expect a price adjustment.
Customers and contracts
Concentration, contract terms, change-of-control clauses and renewal dates. A customer at 25% of revenue with no signed contract is the single most common reason for an earn-out.
People
Who holds the key relationships, who has signed employment contracts and non-competes, and what happens to the business if the owner leaves on day one.
Tax, legal and property
Open tax years, disputes, leases and permits. Usually less valuable than earnings, but the slowest to fix.
Where to start
Work down the list in that order. Our exit and sale preparation review is this list, run on your company, before a buyer runs it for you.