How do you use a due diligence checklist before a sale?
Work through it before any buyer sends its own list: for each item, find the document, note what is missing, and mark anything a buyer would read as a flag, yellow or red. An item is done when it is in the data room, or carries a note that says why not.
The items marked as your CPA's or your attorney's are theirs to prepare and to judge; FNDRS gives no legal, tax, or accounting advice. Tick the boxes as you go: nothing is saved, and the Print button gives you a paper copy.
The conversation about your business can start now: the Go-To-Market Analysis reads it the way a buyer will, before anyone commits.
of the founder-led companies whose written assessments list their constraints had limited financial reporting, the first thing a buyer's team examines.
36 of 108 companies with written constraint lists, scalability assessments completed with FNDRS, October 2024 to October 2026
What does a buyer ask for in the financials?
The financials come first: in the Quality of Earnings review, the buyer's accountants rebuild from them the earnings the buyer is paying for.
Why a buyer asks: A buyer tests the earnings it is paying for against them, year by year and month by month.
If it is a flag: Frame a down year: what caused it, whether the cause has passed, and what the months since show.
Why a buyer asks: The buyer's accountants check that the earnings in the statements are the earnings the business reported.
If it is a flag: Frame any difference: a reconciliation from the returns to the statements, prepared with your CPA.
Why a buyer asks: Books on a cash basis cast doubt on every other number the founder presents.
If it is a flag: Fix it: move the books to an accrual basis before the period a buyer prices.
Why a buyer asks: Statements no outside accountant has looked at are one of the flags buyers find most often.
If it is a flag: Fix it: have the statements reviewed before going to market.
Why a buyer asks: The Quality of Earnings review tests each add-back, and one without a document is the first to go.
If it is a flag: Fix it: document each one, or take it off the schedule.
Why a buyer asks: Founder costs run through the company blur what the business really spends.
If it is a flag: Fix it: take them out before the trailing twelve months a buyer reads.
Why a buyer asks: The Quality of Earnings review tests whether revenue ties to cash before it trusts the earnings.
If it is a flag: Fix it: reconcile revenue to the bank yourself, month by month, the way the review will, before it starts.
Why a buyer asks: The working capital peg the business must deliver at closing is set from it, and the peg moves what you take home.
If it is a flag: Fix it: know the normal level before any letter of intent, so the peg is negotiated while several buyers are still at the table.
Why a buyer asks: What the business owes is settled out of the price, so it changes what the founder receives.
If it is a flag: Fix it: list each one with its balance, so the debt that comes off the price is known before you compare offers.
What does a buyer ask about your customers?
Why a buyer asks: Concentration is the risk that one customer's decision could remove a large piece of the business.
If it is a flag: Frame it: the contract, the length of the relationship, and a plan to diversify.
Why a buyer asks: A key relationship with no written agreement is a flag buyers find in founder-led businesses again and again.
If it is a flag: Fix it: write the agreement down and sign it before launch.
Why a buyer asks: They let the other party end or renegotiate the agreement when the company is sold.
If it is a flag: Fix it: find them first, so the consents a sale needs are known before launch.
Why a buyer asks: A buyer pays for revenue it expects to stay after the sale.
If it is a flag: Fix it where you can: learn why customers leave and fix the top reason, early enough to show in the numbers.
Why a buyer asks: Revenue that repeats without being re-sold each period is revenue a buyer can count on.
If it is a flag: Fix it: report recurring and one-time revenue as separate lines, so a buyer can see the recurring share.
Why a buyer asks: Concentration is too much riding on one customer, one supplier, or one employee.
If it is a flag: Frame it, as with a large customer: the agreement in writing, the length of the relationship, and a plan to diversify.
What does a buyer ask about your people?
Why a buyer asks: A buyer is paying for a business that runs without the owner in the room.
If it is a flag: Frame it: name the seats the owner still holds, what has passed to the team, and the plan for the rest.
Why a buyer asks: A buyer prices the team it is taking on and checks its cost against the earnings.
If it is a flag: Frame it: note anyone paid well below the going rate, such as a family member, since a buyer will pay that role at market.
Why a buyer asks: Misclassified workers are one of the common legal and compliance gaps a buyer looks for.
If it is a flag: Fix it: put each contractor on a written agreement, and ask your attorney about the classification.
Why a buyer asks: An employee whose departure would break a function is a risk a buyer discounts.
If it is a flag: Frame it: show the bench behind them, and decide with your advisors who hears about the sale, and when.
Why a buyer asks: Most buyers want the founder to stay for a time, and the role, the pay, and the non-compete are negotiated.
If it is a flag: Frame it: decide what you want from the role, the pay, and the non-compete before you grant exclusivity.
Why a buyer asks: A process that lives only in someone's head is a cost a buyer must pay to recreate, and it subtracts that cost from the price.
If it is a flag: Fix it: write down the most frequent tasks first, and test each one by having someone other than the expert follow it.
What does a buyer's lawyer ask for?
Why a buyer asks: A buyer has to know exactly what it is buying, and each owner's share has to be agreed before it can.
If it is a flag: Fix it: bring the ownership records current, and agree each owner's share before going to market.
Why a buyer asks: A license in the owner's name is a gap in what the buyer is paying for.
If it is a flag: Fix it where you can: move it to the company; where you cannot, frame how it will pass to the new owner.
Why a buyer asks: Owned processes, software, or brands a competitor cannot copy are part of what a buyer pays for, if the company holds them.
If it is a flag: Fix it: make sure the company, not the owner personally, holds it, and register the trademarks.
Why a buyer asks: A buyer cannot know what an open claim will cost, so it asks for protection: an escrow, an indemnity, or a lower price.
If it is a flag: Frame it: disclose it early, with its facts and where your attorney says it stands.
Why a buyer asks: A buyer adjusts a related-party lease to a market rent and asks what the business costs to run on its own.
If it is a flag: Frame it: document each arrangement at market, and present one set of numbers.
Why a buyer asks: Filings out of date rarely kill a deal, but they delay the close and invite a lower price.
If it is a flag: Fix it: bring every filing current before going to market.
What does a buyer ask about operations?
Why a buyer asks: Aging systems and unsupported tools a buyer would have to replace are a cost it plans for.
If it is a flag: Frame it: list each system with its age and support status, and estimate what replacing one would cost before a buyer does.
Why a buyer asks: Forecasts that come true, and a pipeline a buyer can underwrite, start with numbers the business already tracks.
If it is a flag: Fix it: keep a twelve-month rolling forecast, and track how close each one comes.
Why a buyer asks: Demand produced by a repeatable system, not the founder's relationships, is what continues after the sale.
If it is a flag: Fix it where you can: put a second person on a number, and track the share of new revenue from a repeatable source.
What does a buyer ask about insurance and real estate?
Why a buyer asks: Coverage bought for a much smaller company is a gap a buyer will find.
If it is a flag: Fix it: review the coverage against the size of the business today.
Why a buyer asks: A lease that ends, renews, or needs a landlord's consent to transfer can shape the sale, and a buyer reads it closely.
If it is a flag: Fix it where you can: make the lease transferable before going to market, and plan the sale around the dates it ends or renews.
Why a buyer asks: Many buyers want the business, not the building, so the conversation often starts with a lease.
If it is a flag: Fix it: decide before buyers ask, and if the business stays in the building, set its rent at market in a written lease.
What do you do with an item that turns out to be a flag?
Fix it if it can be fixed before going to market, and frame it if it cannot: disclose it early, with its context and a plan, before offers arrive. Fixes come first, because each one removes a flag entirely.
Yellow and red marks how much a flag would affect price or certainty in your business, never a ranking against the others. The playbook's diligence flag triage sorts each one by its impact and by how easily it can be fixed, and the ten flags buyers find most often each come with their fix.