Twelve areas a buyer and their advisers examine in every due diligence. The full checklist is below, readable without downloading anything.
Download the checklist as a PDF
How to use this list
Each of the twelve areas below is examined in due diligence. A buyer and their advisers go through them whether or not the company is ready. The difference is whether you hear about a problem from them or knew about it beforehand.
Work through the list and tick the areas where you are unsure or already know something needs attention. Each one is set out in three steps: what the buyer checks, what the warning sign is and what can be done about it.
This list does not replace a review. It is here so that you know where you stand before the first conversation with a buyer.
01. Dependence on the owner
What the buyer checks: Whether the business runs when the owner is away for three weeks. Who takes commercial decisions and who knows the key customers personally.
Warning sign: Every significant relationship and decision runs through one person. No second tier of management.
What to do about it: Move at least part of the commercial relationships to the team and record them in a CRM. This is one of the most expensive items in a valuation.
02. Customer concentration
What the buyer checks: The share of revenue and margin taken by the largest customer and the top five. How long each relationship has lasted.
Warning sign: One customer accounts for a large part of sales, or the top three for most of the margin.
What to do about it: Show the history of each relationship and what ties the customer to the company. Dilute the concentration before the process if you can.
03. Customer contracts
What the buyer checks: Whether the business runs on written contracts, what the notice periods are and whether there is a change-of-control clause.
Warning sign: Sales based on purchase orders with no contracts, or contracts letting a customer leave when the owner changes.
What to do about it: Tidy up the contracts before the process starts. A change-of-control clause is one of the first arguments used to cut the price.
04. Revenue repeatability
What the buyer checks: How much revenue returns each year from the same sources and how much comes from one-off projects.
Warning sign: Revenue built on large, non-recurring projects with no visible repeatable base.
What to do about it: Separate the recurring part and show it on its own. It is what lifts the multiple most.
05. Quality of financial data
What the buyer checks: Whether the result can be reconstructed month by month and whether management reporting agrees with the statutory accounts.
Warning sign: Gaps between management figures and the accounts. No profitability breakdown by product, customer or segment.
What to do about it: Get to the point where every number can be traced back to the books. A buyer who does not trust the data assumes the worst case.
06. EBITDA normalisation and evidence
What the buyer checks: Which costs are one-off or private, and whether every adjustment is supported by documents.
Warning sign: Adjustments raised verbally, with no invoices, contracts or schedules behind them.
What to do about it: Collect the evidence for every add-back before the review starts. An adjustment without a document does not exist.
07. Working capital and seasonality
What the buyer checks: Inventory, receivables and payables across twelve months, and how much they swing with the season.
Warning sign: Working capital held artificially low before the transaction, or overdue receivables carried as healthy.
What to do about it: Calculate your own normal working capital level and agree its definition at the letter of intent stage, not in the sale agreement.
08. Liabilities and debt-like items
What the buyer checks: Leases, factoring, guarantees, overdue public liabilities, unpaid dividends and loans from the owner.
Warning sign: Items the owner treats as neutral but the buyer counts as net debt and deducts from the price.
What to do about it: Prepare a full schedule and build it into your price expectation from the start.
09. Tax risk
What the buyer checks: Filings from recent years, transfer pricing, cost classification, VAT on intra-group transactions.
Warning sign: Unclear treatments, missing transfer pricing documentation, aggressive positions taken without an opinion.
What to do about it: Close the doubtful items before the process. An unresolved tax risk ends in an escrow or a price cut.
10. Title to assets and property
What the buyer checks: Legal title to property and key fixed assets, land register entries, encumbrances and easements.
Warning sign: Unclear title, or property held privately by the owner without a lease on market terms.
What to do about it: Sort out titles and related-party arrangements. This is usually fixable, but it takes months.
11. Employment and key people
What the buyer checks: Contracts, non-competes, accrued holiday, claims, and who is genuinely irreplaceable.
Warning sign: Key people with nothing binding them beyond the transaction. Outstanding obligations towards employees.
What to do about it: Secure the key people before the process. A buyer pays for the team that stays.
12. Intellectual property, IT and data
What the buyer checks: Rights to the trade mark, domains, software and code. Licences, GDPR compliance, backups.
Warning sign: An unregistered mark, a domain on a private account, software built by contractors with no transfer of rights.
What to do about it: Move all rights and accounts into the company. This is the most commonly overlooked area and one of the easiest to fix.
What next
If you ticked more than three areas, it is worth running a diagnosis before starting any sale process. Most of these things can be fixed in a few months to a year, but they cannot be fixed during due diligence.
Our value growth programme is described here, and the terms used in this document are explained in the M&A glossary.
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