Main Street Due Diligence When Selling a Business: Arm Yourself with Knowledge

Understanding the Due Diligence Process for Your Business Sale

Preparing for due diligence when selling a business can feel daunting, but it's a critical phase that verifies your company's performance, value, and risks before the deal closes. For Main Street businesses, understanding this process is key to a smooth and successful exit. At Alta Business Advisors, we empower you to navigate due diligence with confidence, ensuring you're fully prepared.

Main Street Business Due Diligence Checklist for Sellers

What is due diligence when selling a business? It's a comprehensive review conducted by the buyer to verify the performance, value, and risks of your business before closing the deal. For Main Street business sellers, this typically includes analysis of:

• Financial Statements & Tax Returns: Comprehensive P&Ls, balance sheets, cash flow statements, and tax filings.

• Contracts, Leases, and Legal Structure: All active contracts, property leases, and legal formation documents.

• Customer and Vendor Agreements: Key client contracts, supplier agreements, and relationships.

• HR Policies & Employment Records: Employee contracts, handbooks, payroll records, and benefits.

• Intellectual Property & IT Infrastructure: Trademarks, patents, software licenses, and technology assets.

• Licenses, Compliance, and Insurance: All necessary business licenses, regulatory compliance records, and insurance policies.

Maps Due Diligence When Selling Your Main Street Business

If you're preparing to sell your business, entering a merger or acquisition, or representing a client in transition, the due diligence process can absolutely make or break the deal.

At Alta Business Advisors, we help Main Street business owners navigate the complex M&A due diligence process with clarity, transparency, and confidence. From organizing financials to facilitating quality of earnings reviews, our experienced M&A specialists ensure you're meticulously prepared at every stage of your business sale.

If you are looking for more information, explore our due diligence checklist.

What to Expect: The Due Diligence Timeline for Selling Your Business

A typical due diligence period for selling a business lasts 60–90 days, depending on deal size and business complexity. Here’s how our team helps you every step of the way:

Week 1–2: Data Collection & Organization

Week 2–8: Financial Due Diligence

Week 8-9: Bank Approval - Underwriting

Week 9-11: Asset Purchase Agreement Finalization

Week 11-12: Final Approvals & Exit Your Business

Main Street Business Due Diligence FAQ for Sellers

• What is due diligence when selling a business?

  • Due diligence is a comprehensive review conducted by a buyer to verify the financial health, operational stability, legal compliance, and overall value of a business before a sale is finalized. For Main Street businesses, this typically involves a detailed examination of financial statements, contracts, customer agreements, HR records, and more.

• How long does the due diligence process usually take?

  • The due diligence period for selling a business typically ranges from 60 to 90 days. However, this can vary depending on the size and complexity of the business, as well as the thoroughness of the buyer's review.

• What documents do I need to prepare for due diligence?

  • Key documents often requested include:

    • Financial statements (P&L, balance sheets, cash flow for the past 3-5 years) and tax returns.

    • Legal documents (articles of incorporation, bylaws, contracts, leases).

    • Customer and vendor agreements.

    • Employee records, HR policies, and payroll.

    • Intellectual property documentation (trademarks, patents).

    • Licenses, permits, and compliance records.

    • Insurance policies.

• What are the most common issues that arise during due diligence?

  • Common issues include:

    • Inaccurate or inconsistent financial records. Review our financial records guide, and explore accounting software options.

    • Undisclosed liabilities (e.g., pending lawsuits, unpaid taxes).

    • Unrealistic financial projections.

    • Issues with contracts, such as change-of-control clauses.

    • Gaps in intellectual property protection.

    • Non-compliance with regulations or permits.

    • Poor internal controls.

• How can I best prepare my Main Street business for due diligence?

  • Proactive preparation is key. This includes:

    • Organizing all financial and legal documents well in advance.

    • Conducting your own "seller-side" due diligence to identify and address potential issues. Review our due diligence guide.

    • Ensuring your financial statements are accurate and up-to-date.

    • Addressing any outstanding legal or compliance matters.

    • Working with experienced advisors like Alta Business Advisors to guide you through the process.

• What is a Quality of Earnings (QoE) report, and do I need one?

  • A Quality of Earnings (QoE) report is an in-depth analysis of your financial statements, often performed by an independent accounting firm. It helps to validate your reported earnings, identify any non-recurring items, and provide a clearer picture of the business's true profitability. While not always required, a sell-side QoE can significantly streamline the buyer's financial due diligence and increase buyer confidence.

• How do Alta Business Advisors help with due diligence?

  • Alta Business Advisors empowers Main Street business owners by helping them:

    • Organize and prepare all necessary documentation.

    • Facilitate quality of earnings reviews.

    • Identify and mitigate potential risks.

    • Navigate complex M&A due diligence requests with clarity and transparency.

    • Ensure meticulous preparation at every stage of the business sale.

Ready to Navigate Due Diligence with Confidence?

Don't let the complexity of due diligence when selling a business overwhelm you. Alta Business Advisors is here to ensure you're fully prepared, from organizing financials to facilitating quality of earnings reviews. We empower Main Street business owners to achieve seamless and successful sales.

Schedule Your Free Seller Consultation

Or, Call us directly: 1-801-554-1050