Seller Due Diligence: How to Prep for a Clean Exit
Thinking about selling your business? Before you list it or speak to buyers, it’s critical to prepare for seller due diligence. Getting your house in order early helps avoid surprises, increases your valuation, and positions you as a professional seller—not a disorganized one.
In this guide, we’ll walk through what seller due diligence means, how it’s different from buyer-led diligence, and what you should do now to prep for a clean, high-confidence exit.
What Is Seller Due Diligence?
Seller due diligence is the process of reviewing and organizing your financial, legal, and operational documentation before listing your business for sale. It mimics the buyer’s due diligence process—but done proactively, so you can catch red flags early and clean up potential issues before they derail your deal.
This type of preparation is typically supported by your M&A advisor, financial team, or third-party due diligence firm.
Why Seller Due Diligence Matters
Waiting for a buyer to find issues is a risky strategy. By then, you’ve likely gone under LOI, paused operations, and invested time and money in negotiations. If problems arise late, it can lead to:
- Reduced valuation
- Lost buyer confidence
- Price retrades or structured deals
- Broken deals and wasted time
On the flip side, seller due diligence helps:
- Speed up the sales process
- Justify your asking price with documentation
- Create buyer trust and transparency
- Reduce post-close liabilities
What to Include in Seller Due Diligence
Here’s what you should review and organize before going to market:
1. Financial Statements (3–5 Years)
Your financials are the foundation of valuation. Ensure you have:
- Clean, accrual-based financial statements
- Profit and loss (P&L), balance sheet, and cash flow statements
- Tax returns
- Chart of accounts that’s consistent over time
- Reconciliations and audit trails
Buyers want to see trends, not just snapshots. Inconsistencies or unexplained adjustments will raise red flags.
2. Adjusted EBITDA or SDE
You’ll need to normalize your earnings to reflect the business’s true performance. This includes:
- Owner’s salary adjustments
- Removing personal or non-operating expenses
- Identifying one-time or non-recurring costs
- Highlighting discretionary spending
This “adjusted EBITDA” will be a key number in your valuation.
Tip: Include documentation for each adjustment. Vague or inflated addbacks won’t pass buyer scrutiny.
3. Contracts and Agreements
Gather all active contracts, including:
- Vendor and supplier agreements
- Customer contracts and master service agreements (MSAs)
- Leases and real estate documents
- Debt and loan agreements
- NDAs, IP assignments, licensing, or joint ventures
Make sure contracts are transferable (assignable) and don’t include surprise clauses that affect the sale.
4. Corporate Documents
Have copies of:
- Articles of incorporation
- Bylaws or operating agreements
- Board minutes (if applicable)
- Stockholder or partner agreements
- Capitalization table
Buyers want to confirm your company is legally sound and free of disputes.
5. Human Resources and Payroll
Review employee-related items:
- Full org chart
- Employment contracts or offer letters
- Benefits summaries
- Payroll tax compliance
- Contractor agreements and 1099s
- Any ongoing HR issues or legal complaints
Buyers will also want to know if key employees will stay post-close.
6. Intellectual Property and Technology
Organize:
- Trademarks, copyrights, or patents
- IP ownership confirmations (especially if freelancers or contractors were involved)
- Source code or tech stack documentation
- Domain registrations and key software licenses
This is especially important for SaaS, eCommerce, or creative businesses.
Include a Quality of Earnings (QofE) Report
One of the smartest seller due diligence moves is commissioning a third-party Quality of Earnings (QofE) report. A QofE gives buyers confidence in your numbers and prepares you to defend your valuation.
It includes:
- EBITDA normalization
- Addback validation
- Revenue and margin trends
- Working capital review
- Risk flags and observations
Learn more about what a QofE covers in our full-service M&A offering.
When to Start Seller Due Diligence
Ideally, seller due diligence begins 3–6 months before you go to market. This gives you time to:
- Clean up books
- Fix operational inefficiencies
- Resolve legal or HR risks
- Prepare your pitch with confidence
Waiting until LOI puts you in a reactive position.
What Buyers Want to See in Seller Due Diligence
Buyers want answers to these questions:
- Are the financials trustworthy?
- Are earnings repeatable?
- Are there customer or vendor risks?
- Are the legal and HR issues manageable?
- Can the business run without the founder?
Seller due diligence helps you pre-emptively answer these and reduce negotiation delays.
Common Mistakes Sellers Make
Avoid these common errors:
Incomplete or outdated financials
Inflated addbacks without support
Missing or non-transferable contracts
Surprises during buyer due diligence
Not disclosing known risks early
These missteps lead to price drops, earn-outs, or failed deals.
Final Tips for a Clean Exit
- Treat your business like it’s under due diligence—even before listing it
- Work with M&A advisors or CPAs who understand your industry
- Document everything clearly and consistently
- Don’t cut corners—it will cost you more during negotiation
- Be transparent. Buyers value honesty over perfection
Remember: serious buyers expect serious preparation.
Final Thoughts
Seller due diligence isn’t about polishing the truth—it’s about preparing for it. A clean exit starts with clarity, not scramble. By getting ahead of the process, you build buyer trust, speed up the timeline, and maximize your valuation.
If you’re planning to sell your business in the next 6–12 months, now is the time to get your documents, numbers, and strategy in order.
Reach out to saman@vasl.team for support with seller due diligence, QofE reporting, and full-cycle M&A preparation.
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