Your client just signed a letter of intent. They think the hard part is over.
It is not. It is just beginning.
Due diligence is the stage of a business sale where more deals collapse than any other. And for most business owners, it comes as a complete surprise. They have spent months negotiating price and terms. They have spent almost no time preparing for the formal verification process that follows.
A recent piece from Exit On Top lays out exactly what due diligence involves from the seller’s perspective, what buyers are really evaluating, and what causes deals to fall apart at the finish line. It is a practical resource worth sharing with any client who is 12 to 36 months from a transaction.
Here is what advisors need to understand:
Buyers Are Not Just Verifying Numbers. They Are Verifying Durability.
At its core, due diligence is about confirming three things: that the earnings are real, that they are durable, and that they are transferable. A buyer paying a multiple of annual earnings needs confidence they will actually earn back that investment after the seller walks out the door. Due diligence is how they verify it.
That framing matters for advisors. Your client may have a strong EBITDA story. But if customer concentration is high, if the owner is the business, or if financial records are scattered and inconsistent, a sophisticated buyer will discount the offer or walk away.
Financial Records Are the First Test. Disorganization Costs Money.
Within the first week of due diligence, buyers will request three years of federal tax returns, three years of profit and loss statements, a current balance sheet, and year-to-date financials. For larger transactions, they will commission a quality of earnings report from an independent accounting firm.
Most sellers have all of this. The problem is it is scattered across billing software, spreadsheets, and old filing cabinets. A seller who cannot produce clean, consistent records quickly signals risk to a buyer and gives them a reason to renegotiate. Getting this organized before going to market is one of the highest-return actions any advisor can help a client take.
Customer Concentration and Owner Dependency Are Silent Deal Killers
When a single customer accounts for 20 percent or more of revenue, buyers will model what happens if that customer does not survive the transition. The result is a lower offer, an earnout tied to retention, or a terminated deal.
Owner dependency is equally problematic. Buyers will formally assess how many hours the owner works in the business, whether key relationships are personal or institutional, and whether there is a management team capable of running operations without the seller. This is one of the core reasons that long-horizon exit planning is not optional. Reducing dependency takes years, not months.
Legal and Compliance Surprises Are Where Deals Die
Buyers and their attorneys will review all business licenses and permits, existing customer and supplier contracts, employee agreements, pending or past litigation, intellectual property ownership, and any regulatory compliance history.
Common deal killers include undisclosed litigation, contracts that require customer consent for assignment to a new owner, worker misclassification issues, and regulatory violations. None of these are necessarily fatal if disclosed and addressed early. The problem is almost always discovery during due diligence rather than the issue itself. A buyer who finds something material they were not told about will reduce their offer or walk.
The Best Outcomes Are Built Before the Process Starts
As XPX members know well, the advisors who deliver the best outcomes for their clients are rarely the ones who show up at the table when the deal is already in motion. They are the ones who spent years helping clients build toward a transaction.
Due diligence is where all of that preparation either pays off or breaks down. Sellers who go to market prepared give buyers confidence to close. Sellers who go to market unprepared give buyers ammunition to renegotiate.
The highest-leverage things an advisor can help a client do before going to market: organize three years of clean, consistently prepared financials; resolve any known legal or compliance issues; document customer relationships and identify contracts requiring assignment consent; reduce owner dependency by building a strong management team; and get a professional business valuation before a buyer’s advisors do.
Read the full article here: What to Expect During Due Diligence When Selling Your Business
