How do I prepare for due diligence when selling a business?
Company due diligence is one of the most important stages in the sale of a business, yet many owners underestimate the value of early preparation. It refers to the investigative process carried out before an acquirer buys a business, which validates key financial, legal and operational information.
Due diligence of a company allows prospective buyers to assess risk to make a sound investment, and failing to prepare properly can delay deals or reduce valuations. Throughout this guide, we will answer:
- What is due diligence & why does it matter when selling a business?
- What types of due diligence are carried out before buying a business?
- What documents do I need to prepare for due diligence?
- How does due diligence impact business valuation & final sale price?
- How can KBS Corporate support me in a streamlined & compliant due diligence process?
| UK’s No.1 Company Sales Specialist With 25+ years of experience and the UK’s largest active buyer network, KBS Corporate – ranked No.1 by LSEG & Experian – guides you through every stage of the sale, from buyer sourcing to legal completion. Start your confidential enquiry today. |
What Is Due Diligence in Company Sales?
Due diligence in business sales is the investigative process a buyer undertakes to verify information and assess risk before acquiring a company. It’s a critical stage that can significantly influence deal success, pricing and timelines.
Buyers conduct due diligence to:
- Verify the accuracy of the company’s financial, legal and operational information
- Identify liabilities or risks that could impact the deal
- Assess commercial viability and long-term sustainability
Due diligence typically begins once an initial offer has been made and the Heads of Terms (or letter of intent) have been signed. This stage signals buyer intent and triggers a thorough investigation into the company’s financials, legal position, tax liabilities, and operations.
What Does Good Due Diligence Involve?
Effective due diligence is a two-way street – but for sellers, being unprepared can cause serious delays or raise red flags.
By partnering with an expert when selling a business, sellers can anticipate buyer concerns, address them proactively, and present a clear, confident case that protects value and accelerates completion.
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Types of Due Diligence Buyers Carry Out Before Buying a Business
Understanding the types of due diligence in advance allows sellers to prepare more effectively. Without the right planning, even a strong business can appear disorganised, potentially leading to difficulties.
Common Types of Due Diligence Before Buying a Business
| Types of Due Diligence | What it Involves | Why it Matters to Buyers |
| Financial Due Diligence | Examination of financial records, cash flow, working capital, EBITDA, debt & forecasts. | Validates earnings and financial health; helps buyers assess value & sustainability. |
| Legal Due Diligence | Review of contracts, ownership, IP rights, compliance, litigation & liabilities. | Identifies legal risks & ensures the business is in good legal standing. |
| Commercial Due Diligence | Analysis of market position, customer base, competitors & commercial strategy. | Evaluates growth potential & verifies strategic alignment with buyer goals. |
| Tax Due Diligence | Review of tax compliance, liabilities, structures & past filings. | Highlights opportunities for tax-efficient structuring. |
| HR/Employment Due Diligence | Investigation of employment contracts, benefits, disputes, pensions & organisational structure. | Assesses workplace liabilities & potential risks associated with integration. |
| Operational Due Diligence | Reviews of processes, systems, supply chains, premises & technology. | Identifies operational efficiencies or limitations that may affect performance. |
| Regulatory Due Diligence | Examination of industry-specific regulations, licences & compliance measures. | Ensures the business adheres to regulatory frameworks & avoids penalties. |
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What Documents Are Needed for Due Diligence in a Business Sale?
One of the most crucial steps in the due diligence process is assembling the right documentation. From financial due diligence to legal, each area requires specific information; inconsistencies can raise red flags that delay the process.
Preparing relevant documents early ensures you remain in control and avoid last-minute surprises. Here’s a breakdown of documents required in a typical due diligence checklist for selling a business:
Due Diligence Documents Checklist
| Type of Due Diligence | Documents Required | Purpose |
| Financial Due Diligence | Audited & management accounts; cash flow statements & financial forecasts; loan & debt details; fixed asset register | To verify revenue, profitability, financial stability and working capital position |
| Legal Due Diligence | Company formation documents; shareholder agreements; litigation history; Intellectual Property ownership & registrations | To identify legal risks, ownership clarity and ensure contract validity |
| Commercial & Operational | Business plan & strategy; customer contracts; supplier agreements; CRM & sales reports | To assess market position, recurring revenue and scalability of operations |
| Tax Due Diligence | VAT & Corporation Tax filings; HMRC correspondence; R&D claims; group structure & inter-company agreements | To uncover hidden tax liabilities and optimise post-sale efficiency |
| HR & Employment Due Diligence | Employee contracts & policies; payroll records; pensions & benefits details; staff disputes/grievances | To evaluate employment liabilities, team structure and retention considerations |
| Regulatory Due Diligence | Licences & permits; health & safety records; environmental compliance/certifications | To ensure legal and regulatory compliance in ongoing operations |
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How to Prepare for Business Due Diligence
Preparing for the due diligence process is vital to successful business sales. In fact, research indicates a 64% increase in due diligence processing time over the last decade, indicating that buyers are taking significantly longer to scrutinise companies before completing deals.
Below is a 6-step due diligence checklist for selling a business, designed to help you stay ahead of buyer demands, present your company confidently and close deals faster.
A 6-Step Checklist for Your Business Sale
- Appoint a Professional Adviser
Engage an expert adviser early to manage legal, tax and buyer-side requests. Our contingent-fee model has no upfront legal fees. - Carry Out an Internal Review
Assess financials, contracts, risks and liabilities to pre-empt buyer concerns before formal buy-side due diligence begins. - Organise Key Documents
Prepare and structure core files – accounts, legal records, HR info – for easy access in a secure virtual data room. - Use Confidentiality Agreements
Have buyers sign NDAs before sharing sensitive info. A legal partner can handle this efficiently and discreetly. - Release Info in Stages
Share data in phases based on buyer intent to protect your leverage and maintain control of the due diligence process. - Full-cycle transaction management: An expert adviser will manage every step, from potential buyer sourcing to vendor due diligence services, deal structuring and final execution.
How Does Due Diligence Affect Business Valuation & Final Sale Price?
During buy-side due diligence, acquirers are looking to uncover risks, verify financial and operational performance, and assess long-term viability.
Suppose the due diligence of a company reveals red flags or inconsistencies. In that case, it can lead to a lower sale price, delayed closing or even renegotiated terms such as earnouts that shift risk back onto the business owner.
Here’s how effective sell-side due diligence supports your valuation:
- Uncovers and mitigates risks before buyers do, reducing negotiation leverage loss.
- Supports valuation through verified data, clean disclosures, and performance trends.
- Speeds up completion by limiting delays during due diligence in the business sales phase.
- Protects the seller’s liability by structuring accurate disclosures and contractual protections.
KBS Corporate’s Approach to Due Diligence and Business Sale Preparation
Unlike traditional brokers, KBS Corporate doesn’t wait for buyers to uncover issues. Our team actively supports sell-side due diligence by helping you compile required documentation in advance, structuring your disclosures to protect you legally and managing buyer expectations.
Here’s how KBS Corporate stands out in due diligence support:
- Integrated legal facilitation: We connect sellers to leading law firms on a contingent-fee basis, meaning no upfront legal bills while still maintaining strategic legal oversight.
- In-house tax specialists: Our group’s tax experts help you limit tax liabilities before they become potential issues during the financial due diligence stage.
- Bespoke due diligence preparation: We prepare and structure sell-side reports to protect your interests and reduce buyer renegotiation power.
- Award-winning marketing materials: Professionally curated documentation and insight-driven presentations increase buyer confidence and transparency.
- Full-cycle support: From valuation to legal due diligence and tax planning, KBS Corporate provides expert-led, end-to-end support to reduce risks and drive success.
Ready to maximise your business sale value? Speak to the UK’s leading business sales specialist, KBS Corporate, for a well-structured, legally protected and confidently priced exit strategy. Book your FREE consultation today!