During due diligence, a buyer and their advisers investigate the financial, commercial, legal, tax and operational information behind your business before completing the purchase. Sellers will usually need to provide documents through a data room, explain financial performance, answer detailed questions and support the claims made earlier in the sale process. The aim is to help the buyer verify what they are acquiring while allowing both sides to identify issues that may affect price, structure or legal protections.
| Due diligence area | What the buyer will examine | What the seller should do |
|---|---|---|
| Financial | Earnings, cash flow, debt, working capital and EBITDA adjustments | Provide reconciled, current financial information |
| Commercial | Customers, suppliers, market position and future demand | Support claims with contracts, analysis and evidence |
| Legal | Ownership, contracts, IP, property and disputes | Organise documentation and explain any issues |
| Tax | Historic filings, liabilities and HMRC matters | Provide records and involve tax advisers |
| Employees and management | Key people, contracts, owner dependency and liabilities | Keep records organised and explain the transition plan |
| Operational | Systems, processes, facilities, equipment and compliance | Demonstrate how the business actually operates |
| Final review | Whether findings affect the offer or deal terms | Address genuine issues and distinguish them from unsupported retrading |
Due diligence is the stage of a business sale where the buyer investigates the financial, commercial, legal, tax and operational information behind what you have told them about the company in order to sell the business safely.
For the seller, that usually means responding to detailed questions, uploading documents to a data room, explaining financial performance and giving the buyer evidence to support the valuation and commercial story presented earlier in the sale process.
It can feel intensive, but extensive questioning does not necessarily mean something has gone wrong.
The buyer is about to commit significant capital and potentially inherit contracts, employees, assets, liabilities and commercial risks. Due diligence is how they test what they believe they are buying.
ICAEW describes due diligence as part of evaluating an acquisition, with financial due diligence examining underlying financial performance and commercial due diligence assessing areas such as the market, customers, competitors and business plan.
For sellers, the objective is straightforward: be prepared, answer accurately, control disclosure and deal with genuine issues before they become reasons for the transaction to collapse.
During due diligence, the buyer and its advisers will typically:
The British Business Bank describes business due diligence as a comprehensive appraisal and highlights financial, legal and commercial areas among the matters a prospective purchaser should investigate.
|
Stage |
What happens |
What the seller should do |
|
Preparation |
Buyer sends information request lists |
Assign responsibilities and organise documents |
|
Data room |
Seller provides supporting evidence |
Upload accurate, current, clearly labelled information |
|
Initial review |
Buyer advisers analyse the company |
Respond promptly to clarification questions |
|
Management Q&A |
Buyer challenges assumptions and performance |
Answer directly and consistently |
|
Issue identification |
Risks or inconsistencies emerge |
Quantify and explain genuine issues |
|
Commercial response |
Buyer assesses effect on valuation and structure |
Separate legitimate findings from opportunistic retrading |
|
Legal negotiation |
Findings influence warranties, indemnities and SPA drafting |
Work closely with seller-side advisers |
|
Final verification |
Latest trading and key conditions are confirmed |
Keep the business performing through completion |
Due diligence is therefore not simply a document upload exercise.
It is an ongoing process of verification, explanation and negotiation.
Formal due diligence often starts after the seller has accepted an indicative offer and Heads of Terms have been agreed.
A typical sale sequence might be:
The exact order varies.
Some buyers undertake preliminary due diligence before submitting an offer. Larger transactions may also use sell-side or vendor due diligence before the preferred buyer is chosen.
ICAEW's financial due diligence guidance specifically recognises both buy-side and sell-side due diligence in M&A transactions.
There is no standard UK timetable.
For a relatively straightforward SME transaction, sellers might plan for around four to eight weeks of active due diligence once the buyer has appropriate access, although some processes complete more quickly and complex transactions can take several months.
That is a practical planning estimate, not an official industry average.
Timing depends on:
A buyer acquiring a straightforward £1 million owner-managed services company may need substantially less investigation than a buyer acquiring a £20 million group with several subsidiaries, overseas operations, property and regulated activities.
Common delays include:
The seller cannot control everything, but preparation has a significant influence over how efficiently the process runs.
Trying to answer every buyer question within hours is not necessarily the best way to make due diligence faster.
A quick but inaccurate answer can create more work later.
A better process is to:
The aim is not to be the fastest seller.
It is to make it easy for the buyer to reach reliable conclusions.
Requests vary considerably, but most SME due diligence can be divided into several broad workstreams.
|
Due diligence area |
Typical buyer questions |
|
Financial |
Are earnings sustainable and accurately presented? |
|
Commercial |
How strong are customers, markets and future demand? |
|
Legal |
Does the company own what it says it owns and comply with its obligations? |
|
Tax |
Are historic and current tax positions understood? |
|
Employees |
Are key people likely to remain and are liabilities understood? |
|
Operational |
How does the company actually deliver its products or services? |
|
Technology / IP |
Does the company control critical systems and intellectual property? |
|
Property |
What premises are owned or leased and on what terms? |
|
Data protection |
Is personal information handled appropriately? |
|
Regulatory |
Does the business hold required permissions, licences and certifications? |
ICAEW notes that due diligence can extend beyond financial matters into areas including commercial and legal analysis, while its legal due diligence resources identify matters such as intellectual property among the areas potentially investigated in a transaction.
For many sellers, this is the most intensive part of the process.
The buyer wants to understand whether the profits used to value the company are genuine and sustainable.
Typical requests may include:
ICAEW's financial due diligence guidance describes FDD as a process that supports M&A decision-making through analysis of a business's underlying financial performance.
Suppose your Information Memorandum states:
The buyer may ask:
The buyer may also compare:
Inconsistency does not always mean misconduct.
Different systems can classify information differently.
But unexplained inconsistencies create questions.
The buyer is rarely interested only in historic reported profit.
They want to know what earnings might continue under new ownership.
That means scrutinising:
Suppose you have presented:
|
Item |
Amount |
|
Reported EBITDA |
£500,000 |
|
Add back owner's salary |
£100,000 |
|
Add back one-off legal fees |
£30,000 |
|
Seller adjusted EBITDA |
£630,000 |
The buyer might accept the £30,000 legal adjustment but argue that a replacement managing director will cost £90,000.
The buyer's calculation becomes:
|
Item |
Amount |
|
Reported EBITDA |
£500,000 |
|
One-off legal adjustment |
£30,000 |
|
Remove current owner salary |
£100,000 |
|
Replacement MD |
(£90,000) |
|
Buyer maintainable EBITDA |
£540,000 |
If the valuation multiple is 4× EBITDA, the difference between £630,000 and £540,000 represents £360,000 of enterprise value.
That is why EBITDA adjustments can become one of the most commercially important due diligence discussions.
Do not become defensive simply because the buyer challenges performance.
If revenue has fallen, explain:
For example:
Revenue declined by 8% in the first half because our largest project ended in February. The effect was partly replaced by two contracts that commenced in May, and monthly revenue returned to the prior-year run rate by July.
That is stronger than:
Revenue is down but we expect it to recover.
Use evidence such as:
If performance has deteriorated materially since the buyer's offer, discuss it promptly with your advisers.
ICAEW's commercial due diligence guidance emphasises understanding a target's market and competitive position, commercial risks, opportunities and forward-looking business plan rather than relying solely on historic financial performance.
For sellers, this means a strong set of accounts does not remove the need to explain:
Financial results are the starting point, not the whole diligence story.
Commercial due diligence tests the wider business model.
Questions may cover:
ICAEW says commercial due diligence is an important part of investment appraisal and examines areas such as markets, customers, competitors and the commercial assumptions behind an investment.
Suppose one customer contributes 35% of annual revenue.
A buyer may ask:
High concentration does not make a company unsellable.
It creates a risk the buyer needs to understand and price.
Later in diligence, a buyer may ask to speak with major customers.
That can create seller anxiety because premature contact could expose the sale.
Do not automatically allow direct access.
Consider:
The timing should be agreed with advisers and the seller.
Legal diligence tests the company's ownership, obligations and exposure.
Typical requests may include:
ICAEW's due diligence resources state that legal due diligence examines the legal basis of the transaction and may, for example, establish whether the business holds or can exercise intellectual-property rights important to its future success.
Imagine your largest customer accounts for 20% of revenue, but the relationship is governed by:
The buyer may ask whether that revenue is genuinely secure.
The commercial relationship may be excellent, but the documentation may not support the level of certainty implied by the seller's forecasts.
That can affect:
This is why preparing your business for sale before going to market can be so valuable.
Tax diligence can examine areas including:
The buyer wants to understand whether tax liabilities may exist inside the business they are acquiring.
GOV.UK confirms that business sellers continue to have responsibilities concerning their tax affairs when a business is sold, with requirements depending on the business and transaction structure.
In a share sale, historic company tax matters can be especially relevant because the buyer acquires the company itself.
Tax findings may ultimately influence:
For seller-side tax planning, see Tax When Selling a Business in the UK.
People can represent a significant part of a company's value.
Buyers may request information about:
They may also ask:
This is particularly important where the business is heavily dependent on its owner.
GOV.UK states that business sellers can have responsibilities towards employees, while additional requirements can arise where employees are affected by a business transfer.
Employment advice should be taken on the implications of the specific transaction structure.
The buyer wants to understand whether the business actually operates as described.
They may examine:
For a manufacturing business, equipment and capacity may receive significant attention.
For a service business, systems and employees may matter more.
For a software business, technology, security and intellectual property could be central.
Business sales can involve personal data relating to:
The ICO specifically addresses data sharing during mergers and acquisitions. Its guidance says organisations should consider data sharing as part of M&A due diligence, including the purpose for which information was originally obtained, the lawful basis for sharing and governance, accountability and security.
Do not assume that an NDA allows unrestricted release of personal data.
Consider:
The ICO's data-sharing checklist also emphasises documenting data-sharing decisions and putting appropriate security measures in place.
When the buyer asks a question, identify what they are actually trying to establish.
If they ask:
Which employees earn more than £100,000?
they may not initially need an unrestricted copy of your entire payroll database.
If they ask:
How concentrated is customer revenue?
they may initially need an anonymised concentration table rather than every customer name.
Due diligence should be transparent, but disclosure can still be proportionate and controlled.
A virtual data room is the organised repository used to provide buyers and advisers with transaction documents.
A typical structure might contain:
The specific structure should match the business.
The sensitivity of access should normally increase alongside buyer commitment.
A possible structure is:
|
Buyer stage |
Information access |
|
Initial enquiry |
Anonymised teaser |
|
Qualified + NDA |
Information Memorandum |
|
Serious buyer |
Selected supporting information |
|
Indicative offer |
Wider financial and commercial information |
|
Heads of Terms |
Main data-room access |
|
Advanced diligence |
Sensitive supporting material |
|
Late-stage verification |
Specific restricted information |
Expect questions.
Many questions.
The buyer's advisers may maintain an information-request list with items such as:
Seller responses may then generate follow-up questions.
This is normal.
The aim is for the buyer to move requests from:
Open → answered → verified → closed.
Create a disciplined process.
This might be:
They should know:
If the IM says the largest customer represents 12% of revenue, do not respond later that it represents 18% without explaining the difference.
Say:
Current order book as at 31 July is £1.4 million.
rather than:
We have around £2 million definitely coming in.
if the second figure includes uncommitted pipeline.
If you do not know, check.
A corrected answer is better than an immediate answer that later proves wrong.
Sellers sometimes answer due diligence questions informally through:
That can make it difficult to remember exactly what was said later.
For material questions, maintain a central record showing:
This improves consistency and can also support the eventual legal disclosure exercise.
Buyers may ask questions you would prefer not to answer.
Examples:
The safest approach is usually:
Do not speculate.
How financially material is it?
What actually happened?
Has it been fixed, stabilised or left unresolved?
Use records rather than reassurance.
Legal, accounting or tax issues may need professional wording.
Weak answer:
They left unexpectedly, but it isn't really a problem.
Stronger answer:
Customer A, which represented 11% of FY2025 revenue, gave notice in February following a change in its procurement strategy. Trading with that customer ended in April. The FY2026 forecast already excludes the account, and £420,000 of annualised new business has subsequently been contracted with three customers.
The second answer lets the buyer evaluate the actual impact.
ICAEW's commercial due diligence guidance explicitly frames CDD as a way of understanding commercial risks, opportunities and the assumptions supporting the investment case.
Sellers should therefore expect questions that challenge:
A challenging question does not necessarily mean the buyer is losing confidence.
Often, it means they are trying to understand whether the investment case can withstand scrutiny.
A credible buyer should conduct proper due diligence. A prepared seller should be able to respond without losing control of confidential information or normal business operations.
Valius brings UK business sellers, buyers and advisers together through one modern platform designed to make acquisitions simpler, more accessible, more transparent and less fragmented.
Register with Valius to connect with the buyer community and prepare for the next stage of your business sale.
Most problems fall into one of four categories:
For example:
For example:
For example:
For example:
The fourth category can be particularly damaging.
A buyer can often price a known commercial risk.
It is harder to price uncertainty about whether other information can be trusted.
If you know that:
do not build the transaction around the assumption that nobody will notice.
Discuss material issues with your advisers and decide when and how they should be disclosed.
An identified £50,000 problem may be negotiable.
A buyer discovering the same problem after asking several times whether any issue exists can create a wider credibility problem.
Yes.
Due diligence may lead the buyer to:
A change is not necessarily unfair.
If information genuinely differs from what the buyer relied upon when making the offer, renegotiation may be commercially justified.
Suppose Heads of Terms assume:
Due diligence establishes maintainable EBITDA at £650,000 because £100,000 of claimed add-backs are recurring costs.
At the same 5× multiple:
£650,000 × 5 = £3.25 million
A £500,000 valuation reduction would be mathematically consistent with the buyer's original valuation methodology.
That does not automatically mean the seller must accept it.
But there is a clear commercial reason for the discussion.
Be more cautious where the buyer:
Ask:
What new information has emerged since Heads of Terms that justifies this change?
Business sales can fail at this stage for many reasons.
If EBITDA declines materially during the transaction, valuation may no longer be supported.
Aggressive add-backs can undermine the price.
Concentration makes this particularly significant.
The business may pass diligence while the buyer still cannot finance the purchase.
Examples include:
This may be significant in asset transactions.
Particularly problematic for technology-led businesses.
The buyer may no longer believe earnings will transfer.
Buyer and seller may disagree about the normal level required at completion.
Repeated inconsistencies can turn individual questions into concern about the whole company.
|
Finding |
Possible buyer response |
Possible seller response |
|
Customer concentration |
Lower valuation |
Evidence retention, contract strength and diversification |
|
Tax uncertainty |
Indemnity |
Clarify exposure with tax advisers |
|
Missing contract |
Condition to completion |
Obtain signed agreement where possible |
|
EBITDA adjustment challenged |
Lower maintainable earnings |
Provide evidence or revise adjustment |
|
Litigation |
Retention or indemnity |
Quantify and document matter |
|
Weak management |
Longer seller handover |
Strengthen transition plan |
|
Working-capital shortfall |
Completion adjustment |
Agree methodology and target |
|
IP ownership problem |
Condition to completion |
Complete appropriate assignments |
Not every issue should result in a reduction in price.
Some are better addressed through:
Your solicitor and advisers should help assess the appropriate solution.
Sometimes.
Examples of fixable issues include:
But be careful about making major changes simply to satisfy one buyer without understanding the consequences.
For example:
may have wider legal, tax or commercial implications.
Obtain advice first.
You do not have to accept every conclusion.
Ask for:
For example, if the buyer says:
Customer concentration creates a £500,000 valuation issue.
Ask:
A structured discussion is more productive than simply arguing that the buyer is wrong.
It becomes a reference point.
The buyer may compare your Business Information Memorandum with the underlying evidence.
If the IM states:
85% customer retention
the buyer may request data supporting that figure.
If the IM says:
Limited owner involvement
the buyer may ask management who actually controls:
If the IM describes:
Strong recurring revenue
the buyer may inspect contracts to establish whether it is genuinely recurring.
This is why the IM should present the business in the best honest light rather than the most aggressive possible light.
Enough for appropriate due diligence—but not indiscriminately.
Sensitive categories may include:
The buyer's legitimate requirement should be balanced against confidentiality and data-protection obligations.
ICO guidance on M&A data sharing says organisations must consider the purposes, lawful basis, governance, accountability and security involved where data changes hands during an acquisition.
Discuss particularly sensitive disclosures with your legal adviser.
Use controls such as:
This becomes particularly important if the prospective purchaser is a competitor.
Read Selling a Business Safely for the broader confidentiality and seller-risk framework.
This is easy to underestimate.
Due diligence can consume substantial owner and management time.
At the same time:
A deterioration in performance during diligence may itself create a valuation problem.
The business is not sold until completion.
Do not mentally exit the company because Heads of Terms have been signed.
There is rarely a dramatic moment when everyone announces:
Due diligence is complete.
Instead, material questions gradually become resolved.
The buyer and advisers will normally determine:
The process then feeds into the legal documentation.
Findings may affect:
For example, a known tax issue may be specifically addressed through an indemnity.
A disputed customer receivable might affect working capital.
An unresolved contract issue might become a condition to completion.
The due diligence findings and sale agreement are therefore closely linked.
In a share sale, the seller may provide warranties in the sale and purchase agreement and then formally disclose exceptions against those warranties.
For example, if the warranty states that there is no litigation but one customer claim exists, the seller may need to disclose the claim appropriately.
The process should be managed with your solicitor.
Do not assume that because the buyer saw a document somewhere in a large data room, the matter has automatically been adequately disclosed for legal purposes.
That is a legal question and depends on the transaction documents.
Due diligence is usually discussed from the buyer's perspective, but the seller has its own work to do.
|
Buyer perspective |
Seller perspective |
|
Verify financial performance |
Make financial records clear and supportable |
|
Identify risks |
Understand and explain risks before discovery |
|
Review contracts |
Organise and correct documentation |
|
Challenge valuation |
Defend reasonable valuation assumptions |
|
Assess management |
Demonstrate transferability |
|
Test customers |
Provide accurate customer analysis |
|
Negotiate protections |
Understand warranties and disclosure |
|
Decide whether to buy |
Decide whether revised terms remain acceptable |
That buyer-led guide explains what an acquirer should investigate.
This article is its seller-side counterpart: what you should expect when those questions are directed at your company.
Sellers sometimes see due diligence purely as the buyer looking for reasons to reduce the price.
That can happen, but good diligence serves another purpose.
It helps the buyer become comfortable enough to complete.
A buyer who understands:
can often move toward legal completion with greater confidence.
Your objective is therefore not to avoid scrutiny.
It is to make appropriate scrutiny efficient, controlled and evidence-based.
Before formal due diligence starts, make sure you can provide or explain the following.
The best time to prepare for due diligence is before the buyer sends the first request.
Priorities include:
Make sure management information is current and reconciled.
Do not wait until exclusivity to discover missing documentation.
Make sure the IM matches the evidence.
List the questions you hope the buyer does not ask.
Then prepare truthful answers to them.
Do not expose your business to somebody who has not demonstrated sufficient credibility.
Designate people to manage the process so normal performance does not suffer.
See How to Prepare Your Business for Sale for the full pre-sale preparation process.
Due diligence can be demanding because it takes the business from a compelling sale proposition to a transaction that must withstand detailed verification.
For a prepared seller, that should not be alarming.
Expect buyers to:
Those are normal parts of acquiring a company.
What matters is how you respond.
Give accurate answers. Keep the process organised. Do not hide material issues. Protect sensitive information. Continue running the company. And distinguish legitimate buyer concerns from repeated attempts to renegotiate without evidence.
If you prepare properly, due diligence becomes less about surviving an investigation and more about helping the buyer confirm that the company they want to acquire is the company you have presented.
Valius was built to make buying and selling UK businesses simpler, more accessible, more transparent and less fragmented.
A credible sale requires more than generating an enquiry. It requires qualified buyers, good information, controlled disclosure and a structured route from initial interest through due diligence and completion.
Register with Valius and join 1,000+ business buyers and sellers already doing business on Valius.