A due diligence checklist for sellers

Once heads of terms are signed, the buyer's advisers start asking questions. Diligence is where most deals lose momentum, and almost always because information is missing rather than because the answers are bad.

On the financial side, expect three years of statutory accounts, management accounts to the most recent month end, a debtor and creditor breakdown, tax filings, and an explanation of every adjustment claimed in the valuation. Buyers will test whether adjusted profit is genuinely repeatable.

On the legal side, expect company records, shareholder agreements, property leases, customer and supplier contracts, employment contracts and any litigation history. Change-of-control clauses are examined closely, because a contract that terminates on sale is a real risk to the buyer.

Commercially, buyers want customer concentration, pipeline, churn, pricing history and an honest view of competition. Presenting this yourself is far better than letting a buyer discover it.

Operationally, they will look at systems, key-person dependency, insurance, health and safety records, accreditations and any regulatory registrations.

The practical advice is simple. Build the data room before you go to market, not after heads are signed. Disclose known problems early, because a discovered problem costs more than a declared one. Then keep answering promptly: momentum is worth real money in a negotiation.