Matt Blackwell
on
When a business goes to market, many owners think of due diligence as a checklist. It’s not. Due diligence is where buyers validate everything they’ve been told and uncover what they haven’t. More importantly, it’s where they assign value to risk. That process ultimately answers three questions: What am I buying? What could go wrong? And what is that worth? For sellers, this is the moment where preparation either protects value—or erodes it.
Not All Buyers Approach Diligence the Same Way
One of the most overlooked realities in a transaction is that the buyer determines the process.
A first-time or individual buyer may take a more informal approach, with fewer requests and slower pacing. A private equity-backed group, on the other hand, will run a structured, high-intensity process with dedicated teams, third-party financial reviews, and constant information flow.
The implication is simple: The more sophisticated the buyer, the higher the standard. And if a seller isn’t prepared for that level of scrutiny, it shows quickly.
The Volume Is Real and So Is the Structure
Due diligence is not a short list. On average, buyers request 70+ individual items, often organized across financials, HR, legal, operations, and preneed.
More experienced buyers go even deeper into corporate structure, compliance, and post-close considerations. And they don’t just request information, they track it, analyze it, and use it to form a narrative about the business. That’s what diligence becomes: a direct reflection of how well the business is run.
Where Buyers Focus and Where Value Is Won or Lost
One of the biggest mistakes sellers make is assuming every diligence request carries equal importance. It doesn’t. Buyers don’t review information in a vacuum, they prioritize. And that prioritization directly impacts how they assess risk, how they structure the deal, and ultimately, what they’re willing to pay.
Understanding how buyers think about diligence allows sellers to focus their time and energy where it actually matters before small issues turn into larger concerns. At a high level, diligence falls into three tiers:
Deal-Defining (Tier 1)
This is where buyers spend the majority of their time and where deals are most often won or lost. Financial performance, call volume trends, preneed liabilities, and employee costs all speak to the core health of the business. If something doesn’t align here, it immediately impacts valuation, buyer confidence, and the overall structure of the deal.
Structure-Shaping (Tier 2)
These items don’t typically stop a deal, but they influence how it gets done. Outstanding litigation, licensing gaps, deferred maintenance, or key employee dependencies introduce risk that buyers will look to offset. That often shows up in the form of escrow holdbacks, purchase price adjustments, or added protections in the agreement.
Administrative (Tier 3)
This is where details matter but mostly for execution. Contracts, titles, and documentation rarely change the economics of a deal. However, when these items are missing or disorganized, they create friction, delay timelines, and more importantly signal to the buyer that there may be deeper operational issues worth scrutinizing.
What Causes Deals to Break
It’s rarely the existence of an issue that derails a transaction. It’s the surprise.
Common diligence findings like lower-than-reported earnings, underfunded preneed, compensation discrepancies, or unreported capital needs don’t just create questions. They create leverage for the buyer. And that leverage shows up in the form of price reductions, revised terms, or deals that never make it to the finish line.
Preparation Is the Advantage Most Sellers Underestimate
The strongest sellers don’t wait for diligence to begin. They prepare for it long before going to market.
That means:
- Clean, reconcilable financials
- Documented and reviewed preneed
- Transparent HR and compensation data
- Organized legal and operational records
When that groundwork is done early, the process moves faster, negotiations stay focused, and value is preserved. When it’s not, diligence becomes reactive and expensive.
Control the Narrative or Let the Buyer Control It
Every deal will go through diligence. The difference is who’s driving the process. When information is organized, complete, and proactively shared, it builds confidence. When it’s incomplete or inconsistent, buyers assume risk and price accordingly.
The most effective approach is simple: Surface risks early, frame them clearly, and present a path forward. Because a known issue can be managed. A discovered issue becomes a problem.
Due diligence is one of the most predictable parts of a transaction. The categories don’t change. The questions don’t change. The process doesn’t change. What changes is how prepared you are when it starts. And that preparation is often the difference between a deal that closes at full value and one that doesn’t close at all.