Most transactions that fail do not fail on price. They fail in diligence, when something surfaces that changes the buyer’s view of risk. The remaining transactions usually complete at a price adjusted for what diligence found.
Both outcomes are substantially within your control, and the work is best done long before a buyer is in the room.
Start with the numbers a buyer will not accept at face value
Management accounts that reconcile to statutory accounts. If your monthly reporting and your audited accounts tell different stories, a buyer trusts neither. This is the single most common finding and it is entirely fixable, though not quickly.
A clean audit trail. From the general ledger to the reported figure, for every significant balance. Diligence teams sample. When a sample cannot be traced, they expand the sample.
Consistent accounting policies across periods. A policy change midway through the review period, even a legitimate one, requires explanation and adjustment. Document why it changed and when.
Monthly close discipline. A buyer forms a view of the finance function’s reliability from how quickly and consistently it closes. A business that closes in five working days with a stable process reads as controlled. One that closes in three weeks, differently each month, does not.
Then the things that take a year to fix
Contracts. Are your key customer and supplier contracts signed, in date, and with the entity being sold? Do they contain change of control provisions requiring consent? Chasing consents under time pressure is expensive and gives counterparties leverage they would not otherwise have.
Property. Leases in the right name, rent reviews settled, dilapidations understood, and any occupation without a formal lease regularised.
Intellectual property. Owned by the company rather than by a founder personally. Contractor agreements that actually assign IP. This is a classic finding in technology and design businesses and it is not fixable in a fortnight.
Employment. Contracts in place, correct classification of contractors, holiday pay calculated correctly, and any historical exposure quantified.
Tax. Historical positions documented and supportable. Any open enquiry resolved or at least understood. Group structures that were efficient when created but are now hard to explain.
Related party arrangements. Property leased from a director, loans in either direction, management charges. All legitimate, all needing documentation on arm’s length terms, and all better resolved before someone asks.
Why vendor due diligence pays
Commissioning your own diligence report does three things.
It finds the problems while they are still yours. A finding you resolve costs the cost of resolving it. The same finding in buyer diligence costs a price adjustment, an indemnity or a retention, and each is worth more than the fix.
It controls the narrative. You explain the adjustments, with evidence, in your own report, rather than defending someone else’s interpretation of your numbers.
It speeds the process up. A credible vendor report reduces the scope of confirmatory diligence, which shortens the period during which anything can go wrong. Time kills deals.
The data room
Build it before you need it. A well-organised data room with a logical structure, complete documents and consistent naming signals a well-run business. A data room assembled in a hurry, with gaps and documents added in response to questions, signals the opposite, and the impression carries into how every answer is received.
The discipline that matters most
Stop optimising the numbers. Any working capital manipulation, revenue pull-forward or cost deferral in the twelve months before a sale will be found. The cost is not the adjustment. It is that the buyer then treats every other figure with suspicion, expands the scope of diligence, and prices in uncertainty you cannot argue away.
A business that presents itself honestly, with problems identified and addressed, gets a better outcome than one that presents itself perfectly and is found not to be.