Preparing for Buyer Diligence

Diligence Is Where Prices Change

Deals rarely die at the handshake; they die, or shrink, in the weeks after, when verification surfaces something the buyer did not expect. Almost every retrade traces to a surprise the seller could have disclosed or fixed early. The preparation goal is simple: nothing material in your business should be discovered rather than presented.

The Financial File

Buyers and their lenders will reconcile your statements to your tax returns and test every add-back. Prepare three years of financials that tie out, documentation for each adjustment you claim, revenue by customer, and an accurate working-capital history. If your books need cleanup, do it before listing; earnings restated during diligence are earnings discounted during negotiation. Where the buyer borrows through the SBA, the lender checks your figures against your own IRS tax transcripts, which needs your consent to the request, so income the returns never reported cannot be counted toward the price.

The Legal and License File

Assemble the contracts, leases, licenses, and permits with their assignment and transfer terms flagged, because assignability gates closings. Where your industry restricts who can own or operate (licensed trades, practices, regulated categories), know the transfer mechanics cold; buyers increasingly arrive already understanding those rules, and a seller who does not looks unprepared in the negotiation that follows.

The Operating Reality

Expect questions about everything that depends on you personally: customer relationships, supplier terms, the license on the wall, the estimating only you can do. Buyers price transition risk, so shrink it in advance: documented processes, a second-in-command with real authority, key staff who will meet the buyer at the right moment, and your own realistic plan for the handoff period.

Run Your Own Diligence First

The cheapest advisor you will ever hire is the one who reviews your business the way a buyer will, before any buyer does. Whether that is your accountant pressure-testing the add-backs or counsel reading the change-of-control clauses, finding it first converts a retrade into a footnote. The buyer's checklist is not a secret; work it from your side of the table while the fixes are still yours to make.

What the Data Says

• Since 1 October 2026 an SBA lender has to obtain an independent quality of earnings report, on top of the business valuation it already needed, for an initial acquisition or expansion whose purchase price reaches $3 million, real estate the business occupies left out. The threshold is measured before buyer equity, seller debt or any other financing, and the report must include a cash proof that reconciles bank statement data to the income statement and the tax return for every period it covers. An owner selling at that size is being verified by a professional working for the buyer's bank, and a report the seller commissions does not satisfy it. An owner buyout and an ESOP or cooperative sale are exempt, on the stated reasoning that the existing owners keep the operational knowledge and the management structure does not change. So is the purchase of an owner-occupied special purpose property with the business run from it, such as a hotel or storage units, whatever the price.

  Source: SBA, SOP 50 10 8.1, effective 1 October 2026, change of ownership appendix

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