Every buyer runs diligence, and diligence is built to find problems. The question is not whether the problems in your company will be found. It is who finds them first, and when. A problem the owner finds a year before going to market is usually a fix or a footnote. The same problem found by the buyer's attorney six weeks before closing becomes a price reduction, a bigger escrow, or a reason to walk away. Most owners prepare the financials and stop there. Here are five other places a buyer's team looks, and where deals tend to stall late.
1. Customer contracts that cannot follow the business
Read your largest customer agreements with one question in mind: what happens if the company changes hands? Some contracts cannot be assigned without the customer's written consent. Others let the customer terminate on a change of control. In an asset sale, those clauses can mean the buyer has to ask your best customers for permission before closing, which is the last conversation you want to have under a deadline. A competitor will look at this first, because the customers are much of what it is buying. A private equity group will want to know how much of the revenue sits under agreements that could be reopened.
2. Licenses, approvals and accounts held in your own name
In many companies this size, the trade license, the bonding, the approved-vendor status with a large customer or the key supplier account is held by the owner personally, not by the company. That works for thirty years and then becomes a problem on the day you sell. A buyer needs to know those approvals will transfer, or that someone on your team can qualify for them. Service businesses are most exposed here. Find out now what is in your name, what it would take to move it to the company, and how long that takes.
3. The lease and the property
If you lease, check how many years are left, what the renewal options are, and whether the landlord must consent to a sale. A buyer will not pay full value for a manufacturing operation that might have to move in two years. A lender to an individual buyer will often want the lease to run at least as long as the loan. If you own the real estate yourself, decide early whether it is part of the sale or will be leased to the buyer, and what a fair rent is. Owners who leave that open tend to negotiate it at the worst possible moment.
4. How your people are classified and paid
Buyers look at whether workers paid as contractors should be employees, how overtime is handled, whether bonuses and commissions are written down, and whether anyone has been promised a piece of the sale. None of this has to be dramatic to matter. A private equity group will ask its advisors to review payroll practices, and anything that looks like an exposure tends to show up as a special indemnity or a holdback. A key employee who believes they were promised equity, with nothing on paper, can hold up a closing on their own.
5. Open claims and loose ends
Warranty claims, a pending dispute with a former employee, an old environmental question at a plant site, a sales tax filing that was never squared up in another state. Each one is usually manageable. The trouble is surprise. A buyer who finds an issue you did not mention starts to wonder what else is missing, and every later request gets slower and more detailed. Make a list, talk it through with your attorney and your CPA, and decide what can be closed out before a sale and what should simply be disclosed early with a clear explanation.
The takeaway
Readiness is not only clean books. It is knowing what a buyer's team will find before they find it. You do not have to fix everything; some issues are better disclosed than fixed. But an owner who raises a problem early, with the facts and a plan, keeps control of how it is priced. An owner who waits for diligence to raise it hands that control to the buyer.
