A guide to preparing for and passing due diligence
Last updated: September 26th, 2023
You've accepted a buyer's offer! Before you move to the final stages of your acquisition, you must prove that your business is as you've described it in a process called due diligence.
From your financials to your HR records, expect buyers to probe every aspect of your business until they're satisfied there are no nasty surprises.
Below, learn what you'll need to do to ensure a smooth road to the finish line.
1. Set up weekly due diligence check-in calls with your buyer
Due diligence is where a buyer verifies your business is all that it seems. Expect your buyer to ask questions about every department and business function to minimize acquisition risk.
Instead of waiting for the buyer to contact you, set up a weekly check-in call to answer those questions quickly. Establishing a set time to review the buyer's concerns accelerates the due diligence process and motivates the buyer to stay on track for closing.
Your weekly calls will also instill more trust in the buyer that you're confident and have nothing to hide. The more you talk and build a relationship, the smoother the due diligence process and post-acquisition transition will run.
2. Populate your data room with the help of senior teams and advisors.
To ensure due diligence goes smoothly, collect and compile evidence for your answers with help from your senior team and advisors.
Then add everything to your data room for sharing later, including:
- Financial statements and tax info
- Asset, customer, and vendor lists
- Legal documents and contracts
Due diligence can be the most challenging stage of your acquisition. If you're feeling overwhelmed, ask our in-house M&A team and expert advisors for help navigating this complex and often demanding process.
3. Selectively give buyer decision-makers access to due diligence data
Your data room should allow you to share items securely.
Work with the buyer’s decision-makers so only those necessary see your data. You’ll also conclude due diligence much faster with fewer handoffs.
Use your judgment when sharing data:
- Only answer relevant and reasonable questions.
- Ensure you’ve vetted the buyer, established trust, and they’ve signed an NDA.
- Help the buyer mitigate risk, but remember you can’t eliminate every risk.
4. Sign an asset purchase agreement and then begin closing on Escrow.com
Once you complete due diligence, you’ll sign an asset purchase agreement (APA) with the buyer to finalize the assets, terms, and closing conditions of the acquisition.
Before signing the APA:
- Check you’re happy with the price and terms.
- Ensure the wording is fair and enforceable.
- Review the APA with legal counsel.
Once you sign an APA, you commit to the acquisition. You can usually only cancel an APA issued on the Acquire.com platform if you and the buyer agree to do so.
How to pass due diligence with Acquire.com founder, Andrew Gazdecki
Templates
Further reading
- Due Diligence and How to Survive It
- 5 Things to Remember When Preparing for Legal Due Diligence
- What to Expect From the 6 Legal Stages of an Acquisition
- Sync Your Financials With the Acquire.com P&L Builder
Glossary
Due Diligence
A process where a buyer inspects a potential investment. Often includes a detailed review of accounting history and practices, operating practices, customer and supplier references, management references, and market reviews.
Profit and loss (P&L) statement
A P&L statement shows your revenue (income) minus expenses (outgoings) for a given period of time. It produces a figure for net profit and how you get to that figure. Buyers will want to see at least one year’s P&L and possibly more to establish if your startup is growing and profitable.
Digital minute book
A digital copy of your startup’s legal documentation available from your counsel. When building your data room, ensure you include a copy of your digital minute book for passing due diligence. Otherwise, you’ll need to track down and group your legal documentation manually.