Preparing for Due Diligence

In M&A, most sellers assume diligence begins 𝙖𝙛𝙩𝙚𝙧 the LOI is signed… But by that point, the clock is already ticking, exclusivity is locked in, and any surprises (real or perceived) can become deal-breakers or issues that chip away at price. The truth is, buyers walk in with a very specific checklist. They’re not just verifying financials, they’re looking for risks, for inconsistencies, and sometimes, for anything that gives them leverage, or even a reason to walk away. Here’s the good news: if you’re the seller, you can beat them to it. It starts with understanding what buyers are looking for: 🔎 HR and compliance gaps 🔎 Messy or incomplete contracts 🔎 Unclear financial adjustments or owner add-backs 🔎 Potential unresolved tax liabilities 🔎 Customer concentration risk 🔎 Unresolved litigation or contingent liabilities 🔎 Cap table confusion or unresolved equity promises These aren’t just technical details, they’re signals to the buyer, and in an M&A process, well-prepared diligence wins deals. What can sellers do? ✅ Assemble your own diligence checklist before buyers do. A good M&A advisor will help you do this during the preparation phase ✅ Have your financials reviewed or normalized by a third-party QofE provider ✅ Clean up contracts, org charts, cap tables, and compliance documentation ✅ Identify “gray area” risks early and prepare thoughtful explanations ✅ Think like a buyer, then remove any friction. Make it easy to buy your company. In diligence, the goal isn’t perfection, it’s being able to give the buyer confidence. When a buyer feels like you’ve done your homework, the dynamic shifts. You’re no longer defending surprises. You’re leading the deal with transparency and strengthening the value you’ve worked so hard to build. #mergersandacquisitions #Investmentbanking #MandA #exitplanning

Surprises in Due Diligence (That Should Not Have Been Surprises) I’ve seen good companies lose millions in value—not because of bad businesses, but because of surprises that should never have happened. Exhibit A. Unassigned IP A co-founder left years ago. No assignment on file. A core module traced back to their laptop. Outcome: 4 weeks of scramble, outside counsel, extra escrow, and permanent price tension. Exhibit B. Sales Tax Exposure Nexus in 5 states after outbound growth. No registrations. No filings. Outcome: Buyer models a seven-figure risk. Structure shifts. More holdback. Closing delayed. Exhibit C. Customer Contracts That Don’t Transfer Half of the top 10 accounts had anti-assignment language. Outcome: Buyer refuses to fund until consents arrive. Two customers negotiate discounts. None of these were malicious. They were invisible—until diligence made them visible. Root Causes I See Again and Again - Records scattered in emails and memory - Cash accounting hides obligations - Legacy entities never cleaned up - Vendor/customer templates reused for years - “Too busy” for a pre-sale audit How to Prevent This with a Boring Routine Intellectual Property – Signed assignments for every founder, contractor, and employee. Domains, code, and accounts in the company’s name. Taxes – State registrations aligned with where you sell. Sales & payroll filed and paid. A simple nexus memo. Contracts – Standard terms that allow assignment. Draft consent letters ready. Financials – Accrual books, clean revenue recognition, add-back log, 12-month working capital schedule. Corporate – Clean entities, updated minutes, grants, cap table, and insurance certificates. The Disclosure Rule That Protects Value If a smart buyer will ask, prepare the answer. If the answer is messy—fix it. If you can’t fix it, disclose it early with context and a plan. ❌ Surprises invite retrades. ✅ Calm disclosure builds trust. You don’t need perfection to close. You need no surprises. 👉 Want to know what buyers will look for before you hit diligence? Check the Sellability Checklist in the comments. #MandA #ExitPlanning #DueDiligence #BusinessValuation #FounderAdvice

After 10 years in the startup fundraising world, here's what I know for sure about the due diligence process: 1. Preparation is key. Founders who come prepared with organized financials, clear metrics, and a solid understanding of their market position always make a stronger impression. 2. Transparency builds trust. Be upfront about challenges and risks. VCs appreciate honesty and will often work with you to address concerns. 3. Your team is just as important as your product. We're not just investing in an idea, but in the people who can execute it. Be ready to showcase your team's strengths and how you work together. 4. Know your numbers cold. Being able to discuss your financials, CAC, LTV, and growth projections without hesitation demonstrates a deep understanding of your business. 5. Due diligence is a two-way street. Use this time to assess the VC firm as well. Are they a good fit for your vision and culture? Do they bring valuable expertise to the table? 6. Legal matters matter. Have your legal documents in order and be prepared for scrutiny. Clean cap tables and proper IP protection can make or break a deal. 7. Customer references speak volumes. Happy customers who can vouch for your product's value are worth their weight in gold during due diligence. What's your top insight from navigating due diligence?

Most deals don’t fall apart because of valuation. They fall apart because the company isn’t ready for due diligence. When investors get serious, they want proof, not promises. If you are searching your inbox for contracts or calling your CPA for last year’s taxx return, you are already losing credibility. Due diligence readiness is not a project. It is an operating discipline. After 15 years working with growth-stage and PE-backed companies, I have learned that the best time to prepare for diligence is long before the first investor meeting. I have sat on both sides of the table and have seen how preparedness drives confidence and accelerates deal timelines. Founders who treat diligence as a habit instead of a negative event set themselves apart. Here are three fundamentals that make the difference: 1. 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 𝗱𝗶𝘀𝗰𝗶𝗽𝗹𝗶𝗻𝗲. Keep copies of everything yourself. Do not rely on your CPA or your attorney to maintain the official record. Investors want to see your grasp of the details. 2. 𝗣𝗿𝗼𝗱𝘂𝗰𝘁 𝗮𝗻𝗱 𝗽𝗿𝗼𝗰𝗲𝘀𝘀 𝗽𝗿𝗼𝗼𝗳. Document your development methodology and product validation steps. Investors fund execution, not aspiration. Showing that you can design, test, and scale with consistency builds trust. 3. 𝗚𝗼-𝘁𝗼-𝗺𝗮𝗿𝗸𝗲𝘁 𝗰𝗹𝗮𝗿𝗶𝘁𝘆. Tie your market entry plan directly to your financial model. When your forecast connects logically to customer acquisition and retention metrics, you communicate clear understanding of both the market and your business. Companies that adopt this mindset reduce friction, shorten deal cycles, and build credibility. If you are planning a capital raise or strategic exit, your diligence readiness will define how investors see the maturity of your company. I work with founders and private equity-backed CEOs to build investor-grade financial systems and documentation that stand up to scrutiny. If you want your next investor request for diligence materials to start with confidence instead of chaos, let’s talk.

When I first started doing this work, I’d just do what the Client asked for. Until I had this case: We once had a Client invest $XX million in a company where the Client wanted to go fast and only focus on red flags - a basic check list to get the deal over the line. Six months later, all hell broke loose: - Payments delayed with flimsy excuses - Partners complaining about breach of contract - Promises of buying inventory that never happened Turns out, this company had a history of fleecing partners. And now our client was tied to the mess and had to clean it up. What I learned: A track record of burning bridges won't show up on a check list approach. Sure you might be able to find some litigation in the public record, but the company could chalk that up to the normal course of doing business. To catch these problems, you need to dig deeper: 1) Reference checks with past partners, not just the cherry-picked ones 2) Litigation searches for contract breaches, judgements, complaints. Where litigation databases are not available, do the manual records retrievals (despite some taking up to 2 weeks). Where even that is not available, do discreet source inquiries! 3) Forensic analysis of financials for cash flow issues or payment inconsistencies Real investigative due diligence means vetting how a company operates inside and out, and preventing surprises from showing up. #dealintelligence #duediligence #PrivateEquity #mergersandacquisitions

I watched a friend lose $150,000 on a multifamily deal last year. The reason? Skipping proper due diligence. Here's what most new investors don't realize about multifamily properties: That pristine-looking 50-unit complex could be hiding six-figure problems behind its walls. Those "amazing" cash flow projections? They might be built on optimistic assumptions that'll never materialize. Here's what proper due diligence really looks like: Physical Inspections: - Foundation and structural integrity checks - Detailed roof assessment - Full plumbing system evaluation - Electrical system testing - HVAC unit inspection for every single unit Numbers That Matter: - Actual rent rolls (not pro-forma) - Last 1-2 years of operating statements - Insurance claim history - Utility bills analysis - Capital expenditure history The brutal truth: Thorough due diligence might cost you upfront. But it could save you hundreds of thousands later. Remember: The best deals are often the ones you walk away from. What's your next step? Never sign that purchase agreement without assembling your due diligence team first. Your investment deserves nothing less. Would you rather spend $20K on due diligence or lose $500K on a bad deal? Share your thoughts below. PS: What's the biggest surprise you've encountered during a property inspection? Drop your story in the comments.

As I've posted, Issuu was acquired by Bending Spoons two weeks ago, so while it's still fresh, I want to share some tips and things I learned along the way that I hope will be helpful for anyone thinking about or going through a large tech acquisition as we just completed. Legal and accounting due diligence can take as much time or more than product and technical due diligence. Most companies are prepared for tech diligence, with their code easily accessible for third party code reviews and are prepared with roadmaps and financial models. But there are a whole host of legal, HR and accounting diligence documents and pieces of information that matter a lot, but often aren't fully available, resulting in last minute scrambles to pull these documents and information from different sources, causing delays or even potentially deductions on the price. Even with a full HR or legal software system, inevitably some of this information is in an email thread somewhere or didn't get properly uploaded. After spending the last 6 weeks compiling and sharing this kind of information with regular updates to a virtual data room, I recommend implementing a process of real rigor around organizing and regularly updating all of this information from the start of a company. Executives at start ups are constantly having to make compromises and decisions around where to spend time. It's easy to miss filing or organizing a document here and there or say I'll get to it over the weekend. It's better to spend the time along the way to have ALL potential material well organized because once diligence starts, it's more intense than anyone, even folks who are seasoned at this, expected, and it moves fast. The materials are being reviewed by people who aren't familiar with the company, so make it as easy as possible for them to digest it quickly Buyers generally aren't purposely demanding seemingly obscure documents to cause frustration, but they do want information to be comprehensive given that they are going to be taking on the company. The bigger a virtual data room gets, the more challenging it can be to easily access the right docs, even if they are complete. Sampling of Specifics....Makes sure to have: -Each employee properly classified -All PIIA docs signed for all employees -All historical tax docs, including obscure docs that might be related to overseas subsidiaries -cap table and all option grants approved and clear -exact titles, contact details and specific fund names for all investors/shareholders -clear documentation of all open source software -easily explainable banking flow, especially between subsidiaries #TechAcquisition #SellingACompany #StartUpLife #CorpDev #MergersAndAcquisitions #MandA #TechMandA

Thinking about making your first investment? Most new investors stress over due diligence. How much is enough? How do you know you’re not overdoing it, or worse, missing a red flag? The truth is, not all due diligence is created equal. Here’s a simple framework to think about it: Focus on the founder’s vision and grit. Ask: Would I regret not backing this person in 10 years? Evaluate the product-market fit. Assess the market size and competitive landscape. Verify key claims from the founder. Deep dive into financials and growth metrics. Speak with customers, competitors and past investors. Conduct legal and compliance reviews. Not every deal needs a Shark Tank level of grilling. Match your diligence to your conviction and check size. And remember, angel investing is often a bet on the people, not just the numbers.

Ever signed a deal… only to later realize the numbers you trusted were hiding the truth? It looks perfect at first glance, but what if those “profits” are just smoke and mirrors? That’s exactly what happened when I worked with an investor who nearly bought a company showing $6M in annual revenue and “20% margins.” On paper, everything looked solid. But once we dug in, the reality was very different: - $800K in receivables were over 120 days past due and unlikely to be collected - Inventory was overstated by $300K because obsolete stock wasn’t written off - One-time revenue made the last quarter look artificially strong Without proper due diligence, he would have overpaid by millions. Here’s what financial due diligence really checks for: 📌 Quality of earnings — are profits sustainable or inflated? 📌 Working capital — is enough cash tied up in receivables and inventory? 📌 Liabilities — hidden debts, tax exposures, or off-balance-sheet risks 📌 Forecasts — are future projections realistic or just a sales pitch? After the review, he adjusted the valuation, renegotiated terms, and saved himself from a bad deal. Business owners and investors, remember this:   Due diligence is not paperwork. It’s protection from financial pain you can’t undo later. #duediligence  #finance  #businessgrowth 

Due Diligence for CFOs: Critical Questions to Address As CFOs advance through the acquisition due diligence process, it is crucial to foster open and transparent communication with the target company’s management team. This phase requires CFOs to seek deeper insights and clarifications on various financial, legal, and commercial aspects uncovered during the initial review. By fostering a collaborative dialogue, you aim to gain a comprehensive understanding of their operations and set the stage for a successful integration. To achieve this, it is crucial to gather detailed answers to the following questions to address key areas and obtain the essential information needed for informed decision-making: 1. Financial Due Diligence: - Financial Health: Describe any significant changes in the company’s financial health over the past three years and any upcoming financial obligations that could impact cash flow. - Accuracy of Financial Statements: Clarify any discrepancies in the financial statements and the reliability of the provided financial projections. - Undisclosed Financial Risks: Confirm that all undisclosed liabilities have been disclosed and detail any financial risks associated with contracts or commitments. 2. Legal Due Diligence: - Legal Compliance: Explain how the company ensures compliance with applicable laws and any pending legal issues that might affect the acquisition. - Intellectual Property Rights: Provide a detailed breakdown of the company’s intellectual property assets, including any pending or past infringement claims, and describe how these rights are protected. - Legal Liabilities: Detail any ongoing litigations or legal issues that could impact the company’s financial standing and potential liabilities related to contracts, warranties, or indemnities. 3. Commercial Due Diligence: - Customer Retention and Transition Analysis: Outline strategies for retaining customers during the acquisition and managing the transition to the acquiring company. - Market Positioning and Competitive Landscape: Assess the company’s market positioning, competitive strengths, and differentiation strategies. - Revenue Profile: Identify any anticipated changes in revenue streams post-acquisition and how the revenue models will integrate with those of the acquiring company. Collecting these answers is crucial for assessing the financial stability, legal standing, and commercial viability of the target company. This thorough due diligence helps ensure informed decision-making, mitigates potential risks, and identifies any hidden liabilities or issues that could impact the success of the acquisition. Join our preview event with Future CFO to learn essential skills and insights CFOs need to succeed: https://lnkd.in/ezf5nccm  #FutureCFO #DueDiligence #Acquisition #LegalCompliance #BusinessAcquisitions