Congratulations! You’ve just received a Letter of Intent (LOI) from a prospective buyer. But before you celebrate, it’s important to remember: the work isn’t over yet. In fact, receiving an LOI is just the beginning of the next crucial phase—due diligence—which plays a key role in successfully selling your business.
From the time the Letter of Intent (LOI) is signed to the final closing, expect the process to take approximately 90 to 120 days. This period typically includes due diligence, securing financing, and negotiating the final purchase agreement. During this time, the buyer will conduct a comprehensive review of your company’s operations, financials, and legal structure. Being well-prepared for each stage is one of the smartest steps you can take to help ensure a smooth and successful transaction.
What Is Due Diligence?
In the simplest terms, due diligence is the buyer’s opportunity to verify every detail about your business before finalizing the deal. Most buyers hire accountants and attorneys to analyze your financials, identify risks, and ensure that what was presented initially matches reality.
If you’re selling your business, you should prepare for this process in advance. Well-organized records demonstrate transparency and build trust—two factors that can speed up negotiations and increase your chances of a successful closing.
What To Expect During Due Diligence
Many sellers are surprised by how comprehensive due diligence can be. It’s not uncommon to receive an initial request list with over 100 items—followed by dozens of follow-ups. Buyers may request everything from your company’s founding documents to employee agreements, vendor contracts, and even litigation history.
For example, if you’re asked about legal matters and the answer is yes, be prepared to provide extensive documentation related to the case.
How To Prepare for Due Diligence
If you’re planning on selling your business, here are key steps to prepare for a smooth due diligence process:
1. Organize Your Documents
Gather and scan important records—such as incorporation documents, tax returns, customer and vendor contracts, employee agreements, and intellectual property filings. Keep physical copies safe in a fireproof cabinet.
2. Ensure Contracts Are Current
All contracts, especially with vendors and customers, should be up to date, properly signed, and fully executed. If agreements have lapsed or are based on informal arrangements, formalize them before the process begins.
3. Work with a Business Broker
An experienced business broker, like Benjamin Ross Group, can help coordinate responses, organize documents, and ensure you meet buyer deadlines efficiently.
Best Practices During Due Diligence
- Use a Secure Data Room: Set up a password-protected file-sharing platform (like ShareFile or Dropbox) to exchange documents safely.
- Track Requests and Responses: Maintain a spreadsheet to log each due diligence request and how it’s been addressed.
- Categorize Requests: Group them into:
- Simple questions needing brief explanations.
- Requests requiring document uploads.
- Complex items that need detailed responses or new documents.
After Submitting Due Diligence Materials
Once the buyer reviews your submissions, they may request follow-up calls or meetings. Prepare in advance by anticipating additional questions so you can respond promptly and confidently.
Why Due Diligence Matters in Selling Your Business
While due diligence can be exhaustive, it serves an important purpose: it gives both parties confidence in the transaction. For the seller, it’s an opportunity to showcase transparency and professionalism. For the buyer, it provides assurance that they’re making a sound investment.
Being well-prepared for this phase increases the likelihood of moving forward to closing—and ensures that selling your business results in a smooth and successful transaction.
Need Help Selling Your Business?
The team at Benjamin Ross Group specializes in guiding business owners through every stage of the sale process, including due diligence.
Download Our Selling a Business Checklist for six simple steps to get your company ready for sale: https://info.benjaminrossgroup.com/selling-a-business-checklist
Contact us at 215-357-9694 for a confidential consultation and expert advice on selling your business.
