Price is agreed on the strength of your story. It is kept, or lost, on the strength of your evidence.
Financial due diligence
- Three years of financial statements and tax returns, reconciled to the ledger
- Quality of earnings: are the add-backs real and recurring?
- Revenue by customer, by month, with churn and renewal data
- Gross margin by product, service line or site
- Working capital by month, to set a normal level for completion
- Capital expenditure history versus depreciation
Legal and contractual
- Customer and supplier contracts, especially change-of-control clauses
- Property leases, options and make-good obligations
- Employment agreements, entitlements and any underpayment exposure
- Intellectual property ownership — including work by contractors
- Litigation, disputes and regulatory correspondence
Operational
- Documented processes and system access
- Key person risk and staff retention plans
- Condition and remaining life of plant and equipment
- Data, cyber and privacy practices
The findings that reprice deals
In practice a handful of issues account for most price reductions: add-backs that cannot be evidenced, employee entitlements that were never provisioned, a top customer with no contract, unbilled or overstated work in progress, and stock that has not moved in a year still carried at cost.
How to prepare
Run diligence on yourself first. Assemble the data room before you have a buyer, have your accountant test the add-backs, and write a short explanation for every unusual line in the accounts. A seller who answers on the same day keeps momentum, and momentum keeps price.