Private equity firms and corporate acquirers follow a structured due diligence process. Understanding what they examine in each category gives sellers a significant advantage.
When a buyer conducts due diligence on your business, they're not improvising. They're working through a structured framework that experienced acquirers have refined over hundreds of transactions. Understanding that framework is the first step to performing well under scrutiny.
There are six core categories that every serious buyer will assess. Here's what they look for in each:
1. Financial — This is always the most intensive category. Buyers will restate your P&L to calculate 'normalised EBITDA' — stripping out owner benefits, one-off costs, and non-recurring items. They'll examine revenue quality (recurring vs. project-based), working capital trends, and cash conversion. Healthy gross margins, growing revenue, and clean books are the foundations of a strong financial score.
2. Commercial — Buyers assess the sustainability of your revenue. How concentrated is your customer base? What's your retention rate? Is there a real pipeline? They'll look for structural reasons why the business will continue to grow after the sale, independent of your personal relationships.
3. Operational — Can this business run without you? Buyers look for documented processes, operational systems, and management depth. A business where everything lives in the founder's head is a much riskier acquisition than one with clear procedures and a capable team.
4. Legal — Corporate structure, contracts with customers and suppliers, IP ownership, employment agreements, and pending litigation all fall here. Buyers want clean, transferable assets with no hidden liabilities. Messy legal structures are a common source of deal delays.
5. IT & Systems — More important than ever. Buyers assess cybersecurity posture, data handling practices, and the quality of your core business systems. Legacy or undocumented IT infrastructure is a risk factor that sophisticated buyers will price in.
6. People — Who are your key employees, what are their contracts, and are they likely to stay post-acquisition? Buyers will also look at turnover rates, any HR liabilities, and whether compensation is at market rates.
Scoring well across all six categories doesn't mean perfection — it means being able to demonstrate that known issues are understood and manageable. Buyers are more forgiving of problems you've identified and explained than ones they discover themselves.
Run a free assessment across all six due diligence categories in under 15 minutes.