What actually happens in due diligence
Diligence is where most deals die, and rarely from one big problem. What the buyer is doing, how long it takes, and how to keep it moving.
Diligence is where most deals come apart, and almost never because of one catastrophic discovery. It is usually an accumulation of small things that take too long to answer.
What the buyer is doing
He is checking that the earnings you claimed are the earnings that exist. His accountant ties your add-backs to documents, matches the books to the returns, and looks for anything recorded in one period that belongs in another.
Alongside that, his lawyer is reading your contracts, your leases, your insurance and your licences — looking for anything that does not transfer, or transfers only with somebody else's permission. A lease with no assignment clause and a landlord who has not been asked yet can stall a closing for a month.
Momentum is the thing to protect
A request list arrives, you answer most of it in a week, and three items sit open because the documents are in a filing cabinet or your bookkeeper is on holiday. Two weeks pass. The buyer starts wondering what else is slow.
Deals rarely die from a bad answer. They die from no answer, repeatedly, until the buyer's enthusiasm runs out. The owners who get through this cleanly are the ones who assembled the file before the LOI rather than after it.
A Straight Answer
Build the diligence file before you go to market, not when the list arrives. The same questions come every time, and answering them in week one instead of week six is worth more than any negotiating tactic you will use.
BuiltEquity is a sell-side brokerage for trades and field-service companies. Nothing here is legal, tax or accounting advice. Your CPA and your attorney are the authority on your situation.