What does due diligence involve for a seller?

A buyer asks you to prove five things: that the earnings are real, the taxes are clean, the contracts transfer, the operations run without you, and the assets exist.

• Financial: profit and loss statements, balance sheets, tax returns, bank statements, and an add-back schedule.
• Tax and legal: filings, sales tax compliance, corporate records, litigation, licenses, and insurance.
• Commercial: customer contracts, concentration by customer, vendor agreements, and leases.
• People: an organization chart, pay and tenure, and who holds the customer relationships.
• Assets: an equipment list, condition, and liens.

The financial request carries the price. The buyer rebuilds your SDE from source documents. SDE is net profit plus one owner's full compensation plus documented add-backs. On a business with $1,000,000 in revenue and $250,000 of SDE, every dollar of add-back that lacks a receipt, invoice, or payroll record comes out of that $250,000 before the multiple is applied. The price falls by that dollar times the multiple. Our answer on which add-backs a buyer will accept shows where those challenges land.

Capital items work differently. If a buyer finds a worn-out fleet or deferred maintenance, that comes off the price as a capital adjustment, not off SDE, so you can negotiate it as a one-time number instead of a permanent cut to earnings.

After the LOI, the buyer gets exclusivity and a request list, and you have roughly 60 to 90 days to close, a range that depends on financing and diligence. The LOI sets the price and structure, but the buyer can still revisit them when diligence finds a number that differs from what you reported. That is how a sale stalls.

If the buyer uses an SBA 7(a) loan, the lender adds its own layer under SOP 50 10 8.1:

• Above a $350,000 purchase price, the lender must obtain an independent valuation from a Qualified Source. It is ordered by and prepared for the lender. A valuation you commissioned cannot substitute for it.
• At a business purchase price of $3,000,000 or more, the lender must obtain a quality of earnings report. It cannot be prepared by or for you. It includes a cash proof for the trailing twelve months and the last two fiscal years, and the lender uses its normalized earnings in the coverage calculation.
• The lender tests debt service coverage of at least 1.25x on historical results. Projections cannot be used to meet it.

That last point changes how you present the business. A growth story does not help a buyer's lender. Last fiscal year or a two-year average is what counts, so an add-back that a quality of earnings report rejects reduces the earnings the lender relies on and can shrink what the buyer can borrow.

Working capital gets tested in the same window. The buyer proposes a target level, and you negotiate it. Read what a working capital peg is before you see one in a draft purchase agreement.

You prepare by doing the buyer's work before the buyer does it, which takes about 4 to 8 weeks before a business goes to market. Run the same checks the buyer and lender will run:

1. Reconcile your profit and loss statement to your tax returns and bank deposits. A gap between the books and the returns is the first thing a buyer questions.
2. Put a document behind every add-back. Personal expenses need statements, and one-time costs need invoices.
3. List capital needs separately, with a cost for each, so you control how they are presented.
4. Collect contracts, leases, licenses, and insurance policies, and flag any that need a counterparty's consent to transfer.
5. Decide who tells the customers and staff, and when. Buyers ask to speak to key relationships, and you set the timing in the NDA and LOI.

Then decide whether to commission your own quality of earnings report before going to market. A seller-side report cannot satisfy the SBA requirement, but it shows you what a buyer's accountant will find while you can still fix it. Our answer on whether you need a quality of earnings report covers the cost and fit. The 12-month preparation checklist lays out the longer runway.

Munera shares your business only with NDA-signed, vetted buyers behind a blind profile, so these documents go to qualified parties, not the open market.