Due diligence is the period after a Letter of Intent is signed where the buyer (and their advisors) verify everything the seller represented about the business. It typically lasts 30–60 days for smaller businesses and 60–90 days for mid-market transactions. How well a seller is prepared for due diligence directly affects how quickly — and whether — the deal closes.
Financial Due Diligence
The buyer's accountant or financial advisor will review: tax returns cross-referenced against the SDE recast, bank statements reconciled to P&L, payroll records, accounts receivable aging, and customer revenue analysis. Any material discrepancy between what the seller represented and what the records show is a deal-threatening event. Sellers who have clean, organized financial records move through this phase in days rather than weeks.
Legal and Operational Due Diligence
The buyer's attorney reviews: the lease and all amendments, all significant customer and supplier contracts, employment agreements, insurance policies, any pending litigation or regulatory issues, licenses and permits, and corporate formation and ownership documentation. Operational due diligence may include site visits, customer reference calls, employee interviews, and technology/equipment assessments.
Sellers should approach due diligence as a collaborative process, not an adversarial one. Buyers who feel sellers are forthcoming, organized, and transparent develop confidence that accelerates closing. Sellers who appear evasive, disorganized, or defensive create doubt that slows or kills deals. Preparation before marketing eliminates most due diligence surprises.