Due diligence: Why you can’t avoid it before selling a company – and how to prepare

If you're planning to sell your company or a stake in it, bring in an investor, or take any other strategic step, here's one big heads-up: you won’t avoid due diligence. Every major transaction requires caution – and nobody wants skeletons in thecloset. Due diligence can determine whether your sale or investment goes through smoothly or turns into a drawn-out nightmare. 

No matter how well you think you know your business, due diligence (DD) will uncover the real picture,and it might not always be what you want to see. Whether it's hidden risks, legal obligations, or issues with intellectual property, DD shows exactly where you stand. Done right, it can boost your company's value. Done wrong(or unprepared)it can derail the deal.

Not sure what to expect? Legal reviews, financial checks, deep dives into contracts and business relationships. And all this before you shake hands on any deal. But with the right preparation, you can stay in control and walk away with a fair price and minimal stress. Here’s how.👇

Due diligence protects everyone 🛡️

DD protects both seller and buyer. It uncovers hidden risks that could affect the company's value or block the deal altogether. 

• As the seller, you need to have your paperwork in order and know what the buyer will want to see. 

• As the buyer or investor, DD is how you check whether the company is a solid investment – and thatyou’renot getting into trouble. 

What is due diligence?

It’s a full review of your company by the buyer or investor. They’ll check that your business is worth what you're asking – and that there are no unpleasant surprises. They’ll look at your finances, contracts, internal processes, tech stack, and more. 

The betteryou'reprepared, the faster and smoother the process. Good preparation can even increase your valuation.

What gets reviewed during DD?

Here’s what buyers or investors typically look into:

1️⃣ Financial DD

The buyer will want to understand how your company really operates and its growth potential. Expect them to review:

• Financial statements 

• Revenues and profitability 

• Cash flow 

• Debts and assets 

• Any outstanding obligations

2️⃣ Legal DD

A thorough review of all legal documentation, including:

• Contracts and employment agreements 

• Liabilities to third parties 

• Intellectual property (IP) protection – patents, trademarks 

• Compliance with regulations (e.g. GDPR)

3️⃣ Commercial DD

They’ll assess: 

• Customer and supplier relationships 

• Business model and market position 

• Risks and growth opportunities 

4️⃣ Technology DD

Especially relevant for startups and tech firms: 

• Do you own your IP and software? 

• Is your infrastructure solid? 

• Are there any hidden tech issues or risks?

How the DD process works – and who gets access?

Expect buyers to involve lawyers, auditors, accountants, and tech or tax specialists. The size of the transaction usually dictates how deep the review goes. There are three typical stages:

1. Preparation and documentation

   Once the buyer shows interest, it’s time to prepare. You’ll create a secure Data Room and gather all key documents – financial statements, contracts, asset/liability lists, employment agreements, IP info, and more.

2. Analysis and evaluation

   Their team will go through everything to assess your company’s value. This includes both financial DD (books and records) and legal DD (structure, risks, liabilities).

3. Report and negotiation

   They’ll send a report with risks, red flags, and suggestions. Based on this, they might renegotiate the price or terms. You’ll have a chance to clarify or fix things before closing. 

💡 How to prepare for due diligence

Now the important part – how to make DD as stress-free and smooth as possible. A few proven tips:

✅ Organize your documents

Make sure all key materials are in place and easy to access. You’ll need: 

• Financial statements (last 3–5 years) 

• Tax returns and payment confirmations 

• All contracts – employment, commercial, supplier, NDAs 

• IP documentation – patents, trademarks, licenses 

• Legal documents – including contractor agreements, employee comp plans, and unresolved obligations

✅ Secure your IP

Especially critical for startups: 

• Make sure ownership is clear – especially with freelancers, agencies, or former team members 

• Register your trademarks and domains 

• Make sure you’re GDPR compliant 

✅ Know your company’s value

Get an independent valuation so you’re ready for price negotiations. If your expectations are off – too high or too low – it’ll slow things down.

✅ Be transparent

Buyers appreciate honesty. Hiding issues won’t help – they’ll come up sooner or later. Address concerns openly, keep communication regular, and respond quickly to questions.

✅ Bring in outside help

Work with professionals. A good lawyer, accountant, or M&A advisor can spot issues early and help you solve them before they become deal-breakers. 

✅ Fix issues early

If there are conditions precedent (things you need to fix before signing), deal with them as soon as possible. For more serious red flags, act fast and show your buyer that you're on top of things.

✅ Prepare for negotiations

Due diligence may lead to new demands or price reductions. Know your limits and what you’re willing to negotiate on – and where you’ll draw the line.