After the first discussions, bids and a letter of intent, the phase that many entrepreneurs dread comes: due diligence. This is when the buyer takes a magnifying glass through your company. Everything comes on the table: the numbers, contracts, legal documents, personnel records, and even the informal agreements you thought no one knew.
Many entrepreneurs experience this phase as stressful. Not because something is necessarily wrong, but because you suddenly get the feeling that your company — your life's work — is under a microscope. Understanding how due diligence works helps you get through this period in a controlled manner and with greater confidence.
Due diligence literally means due care. For the buyer, it is a control mechanism: is the picture painted in the conversations and documents correct? Are there risks that have not been mentioned before?
The outcome of due diligence can have major consequences:
A due diligence investigation is broad. Depending on the size of your company and the professionalism of the buyer, the scope may differ. The most important parts:
Many entrepreneurs underestimate how much work due diligence involves. Preparation can take weeks or even months. A few tips:
Entrepreneurs often experience due diligence as confrontational. It feels like a stranger is browsing your private affairs. In addition, there are sometimes criticisms or questions are asked that you think are unnecessary.
It's important not to take this personally. The buyer does not do this to test you, but to manage risks. Think of it as a business process, not an assessment of your leadership or company.
After completion, a report with findings usually follows. There are three scenarios:
In practice, it often happens that findings lead to a reduction in the purchase price. So make sure you've built this risk into your own expectations.
The due diligence phase is intensive, but also an opportunity to show that your company is professionally organized. Entrepreneurs who have their affairs in good order often experience that the buyer is actually gaining more confidence and that the deal runs more smoothly.
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