Due diligence runs after the LOI and usually takes 30 to 75 days. The buyer verifies financials, taxes, contracts, leases, legal standing, and operations against what you represented. If everything ties out, you proceed to closing. If it does not, the buyer may renegotiate (re-trade) or walk. Clean, prepared records are what keep diligence a formality instead of a threat.
The five phases
- LOI and exclusivity set price, terms, and a diligence window.
- Data room opens with your organized document package.
- Financial and tax verification confirms earnings and working capital.
- Legal and operational review checks contracts, licenses, and key-person risk.
- Resolution and close handles findings and signs definitive agreements.
How long it takes
For lower-middle-market deals, diligence typically runs 30 to 75 days from signed LOI to close. It is faster when your documents are clean and organized and slower when the buyer keeps finding gaps that have to be chased down. A direct operator-buyer with a focused process is usually at the shorter end; a private-equity or bank-run process with multiple advisors is usually at the longer end.
How to avoid a re-trade
A re-trade is when the buyer lowers the agreed price during diligence because the numbers did not hold up. The way to avoid it is to make sure there are no surprises: reconcile your financials, prepare a defensible add-back schedule, disclose customer concentration and any known issues up front, and confirm your key contracts and leases are assignable before you sign the LOI. Buyers re-trade on things they discover, not on things you disclosed. Preparation is the entire defense.
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Frequently asked questions
How long does due diligence take when selling a business?
For lower-middle-market deals, usually 30 to 75 days from signed letter of intent to closing. Clean, organized documents shorten it; missing or inconsistent records drag it out and raise the risk of a price re-trade.
What is a re-trade in a business sale?
A re-trade is when the buyer lowers the agreed price during diligence, usually because the financials or other facts did not match what was represented. Disclosing issues up front and having clean, defensible numbers is the best protection against it.
What does a buyer check during due diligence?
Financials and tax returns, working capital, customer concentration, key contracts and their assignability, leases, licenses and legal standing, litigation history, and operational and key-person risk. In short, they verify that the business is what you said it is.
What is a quality of earnings report?
A quality-of-earnings report is an independent analysis, usually by an accounting firm, that verifies and normalizes a business owner earnings for a buyer. It is common on larger deals and adds credibility to your numbers, sometimes supporting a higher, more certain price.
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