In every transaction, due diligence is a key step in the sale process. Its purpose is straightforward: it allows a buyer to confirm that the information presented prior to signing a Letter of Intent (LOI) is accurate, complete, and reliable. Most LOIs estimate a due diligence period of 60–90 days, and a good M&A advisor will work hard to keep the process as short as possible.
We tell our clients that due diligence really begins during management meetings, when buyers are forming their early impressions. But the heavy lifting doesn’t start until you have a signed offer and a committed buyer on the other side. From that point forward, the focus shifts to verifying the details of the business.
For many business owners, working with an advisor early in the process helps ensure the company is prepared before buyers begin their review. As we discussed in our previous article, “When to Bring in an M&A Advisor,” preparation well before a transaction begins can make the entire sale process more efficient and easier, with no surprises.
What Due Diligence Covers
A buyer’s due diligence typically spans every corner of the company:
- Financials
- Insurance coverage and policies
- Business formation and governance documents
- Contracts and obligations
- Customer information
- Vendor relationships
- Claims and other legal issues
If the business has been well run and the process is well managed, due diligence becomes a “check-the-box” exercise, confirming that records are complete, materials are in good form, the financials accurately reflect the company’s actual performance, and there is nothing “hiding in the woods” that may impact the future under new ownership.
The Role of Quality of Earnings
In today’s M&A environment, buyers routinely engage a third‑party financial advisor to perform a Quality of Earnings (QoE) analysis. This is a deep, detailed examination of revenue, expenses, and working capital to confirm that reported results are supported by verifiable transactions that flow through the company’s bank accounts. The QoE has become a central component of diligence, and its findings can influence final deal terms, making preparation and accuracy critical.
How We Facilitate a Smooth Diligence Process
As M&A advisors, our job is to keep the process efficient, organized, and with no surprises that could impact or even derail a transaction. As part of our Sell-Side Services, we help clients prepare for diligence and manage the process once a buyer is engaged. That includes:
- Setting up and managing a secure online data room so the buyer and their advisors can access documents in an orderly way.
- Coordinating with your existing advisors including your CPA, tax preparer, insurance broker, employee benefits consultant, corporate attorney and other advisors.
- Ensuring questions are answered quickly and completely to give buyers confidence in the business they’re acquiring.
A well‑run due diligence process keeps momentum intact, and momentum is one of the most valuable assets in any deal.
A Word of Caution
Buyers often ask to speak directly with employees or customers during due diligence. While these conversations may eventually be appropriate, timing is everything. These discussions should not occur until the buyer has confirmed the financial terms of the transaction. Managing this step carefully protects confidentiality, minimizes disruption, and preserves the seller’s leverage.
Preparing in Advance
Companies considering a sale in the next few years can help ensure a smooth due diligence process by preparing early: cleaning up records, organizing contracts, standardizing reporting, and ensuring that financials can withstand scrutiny.
If you’d like guidance on how to prepare your company for a future sale, Shoreline Partners can help you understand what buyers will look for and how to position your business for a smooth, successful transaction. Contact us today to start the conversation.