What Happens During Due Diligence When Selling a Small Business?

Due diligence is the 60–90 day period after a Letter of Intent is signed, when the buyer looks under the hood. It's where the deal proposed on paper gets tested against reality.

It can feel invasive. It is a little invasive. But it's also just a process — and the better prepared you are, the smoother it goes for everyone.

What Buyers Look At

Financial diligence comes first. Tax returns, P&Ls, bank statements, payroll records. The buyer's accountant is checking whether what you represented during the sale matches what's in the books.

Legal diligence follows. Leases, vendor contracts, employment agreements, any outstanding litigation or liens. The buyer needs to understand exactly what they're acquiring.

Operational diligence looks at the business from the inside: who the key employees are, what systems exist, and how the venue actually runs week to week.

What Buyers Are Really Looking For

Surprises. Anything that wasn't disclosed or wasn't evident in the initial materials.

A key employee who's hinted they'll leave when the owner does. A lease with unfavorable renewal terms. A revenue concentration nobody mentioned. None of these automatically kills a deal — but surprises that surface late are the ones that blow deals up.

How to Be Prepared

Organize your documents before you get an offer, not after. A well-organized data room — even just a cloud folder with clearly labeled files — signals professionalism and speeds everything up. (If you haven't started, here's what to pull together.)

Know the answers to the predictable questions: what's the lease situation, how are your key employees compensated, how concentrated is your revenue?

And every seller has a few uncomfortable facts about their business. Surface them early. Buyers are far more forgiving of known issues than discovered ones.

The Other Direction

Diligence runs both ways. This is also the period when you should be evaluating your buyer: their financing plan, their track record, their actual intentions for the business.

A buyer who can't move through diligence efficiently is a buyer who might not close — and time kills deals. It's completely fair to ask questions back. Interview your buyer.

Want to know what diligence looks like when Stonecrest is on the other side of the table? Ask us — we'll walk you through our exact process before you commit to anything.