Article by:
Rachel Lugo
Originally published at stellaandmain.com/blog-due-diligence
Most sellers think due diligence is about confirming the revenue number. It's not. By the time a buyer gets there, they already believe the revenue is real — what they're doing is looking for reasons to walk away or reasons to renegotiate the price.
Five things get examined every time: financial statements, reconstructed down to true owner earnings and every add-back questioned; customer concentration, where any single customer above 15–20% of revenue gets flagged and SBA lenders treat it as a credit risk; key employee risk, meaning anyone hard to replace who isn't locked in with an agreement; legal and compliance issues like tax liens, unpaid payroll taxes, or 1099 misclassification; and contract transferability, since a buyer's attorney will pull every major agreement looking for assignment restrictions.
The best thing a seller can do is run their own diligence before going to market — pull the same things a buyer would pull and look at them through the lens of someone trying to find problems. The issues you find, you can fix. The ones you don't find, buyers will find for you.
Read the full breakdown of all five areas on the Stella and Main blog: stellaandmain.com/blog-due-diligence
