What Is Due Diligence and What Does a Buyer Actually Look At

You have signed the LOI. The buyer seems serious. Everyone is moving forward. Then someone says “due diligence starts Monday” — and if you have never been through this before, you may not fully understand what that means or how demanding it is about to get.

Due diligence is the buyer’s opportunity to verify everything you have told them about your business. It is systematic, thorough, and designed to surface problems. Here is what actually happens.

What Due Diligence Is

Due diligence is the investigative process a buyer conducts between signing the LOI and closing the deal. The goal is straightforward: confirm that the business is what the seller says it is, identify any risks or liabilities that affect the deal, and determine whether the agreed purchase price still makes sense given what they find.

It is not an expression of distrust. It is a standard part of every transaction. But how well you are prepared for it determines how much leverage the buyer gains during the process.

What Buyers Actually Look At

Due diligence covers the entire business. Here is what falls under each category:

Financial diligence

• Three to five years of financial statements and tax returns
• Revenue and EBITDA trends — and whether they are sustainable
• Customer concentration — what percentage of revenue comes from your top five clients
• Accounts receivable and payable aging
• Existing debt, liabilities, and off-balance-sheet obligations
• Any financial add-backs being applied to normalize EBITDA

Legal diligence

• Corporate formation documents and ownership structure
• All material contracts — customer, vendor, lease, and partnership agreements
• Any current or threatened litigation
• Regulatory compliance, licenses, and permits
• Intellectual property ownership and assignment agreements
• Employment agreements, non-competes, and HR matters

Operational diligence

• How the business actually runs day to day
• Key processes and whether they are documented
• Technology systems and infrastructure
• Supplier relationships and dependencies
• Owner involvement in operations — and what happens without them

Tax diligence

• Federal, state, and local tax filings
• Any open audits or unresolved tax matters
• How the deal structure affects the tax treatment of the transaction

What Buyers Are Really Looking For

Behind every document request is a question. The financial questions are really asking: is this business as profitable as you say, and will it stay that way? The legal questions are asking: are there liabilities we will inherit? The operational questions are asking: can this business run without you?

The issues that create the most problems in due diligence are the ones sellers did not disclose — not because they were hiding them, but because they did not know buyers would care. Customer concentration that was never flagged. Contracts that were never formally signed. IP that was created by a contractor without an assignment agreement.

How Due Diligence Affects Your Deal

Buyers use what they find in due diligence to renegotiate. Price reductions, additional escrow holdbacks, expanded indemnification obligations, and new closing conditions can all emerge from due diligence findings. The more issues a buyer finds, the more leverage they have.

Sellers who are prepared — who have identified and addressed issues before the process begins — move through diligence faster, with fewer surprises, and with their original deal terms largely intact.

What to Expect Practically

Expect 60 to 90 days of document requests, follow-up questions, and management calls. Expect to spend significant time on this while still running your business. Expect your attorney to be heavily involved. And expect that some issues will surface — the question is whether you find them first or the buyer does.

GNS Law prepares founders for due diligence and represents them through the M&A process from LOI to closing. If you are heading into a sale, contact us at gnslawpllc.com to make sure you are ready for what buyers will find.

About GNS Law

GNS Law is a business law firm for entrepreneurs and business owners who are building, scaling, or preparing to sell their companies. Founded by M&A attorney Gabriela N. Smith, the firm advises clients across the full lifecycle of their business — from entity formation and contract review to risk management and exit transactions. GNS Law works with founders and operators across industries, domestically and internationally, delivering practical legal guidance that moves with the pace of business.

This article is for informational purposes only and does not constitute legal advice. For guidance specific to your situation, contact GNS Law.