Seller’s Due Diligence Preparation Checklist

By Michael P. Barry, LMB Partners

A buyer’s diligence request can reach into nearly every part of your business. Preparing before that request arrives gives you time to locate records, reconcile inconsistencies, and address problems while you still control the timetable.

For Colorado business owners considering a sale, the objective is a supportable account of what the buyer will acquire and what risks come with it. Start with the following checklist, then tailor it to your industry and proposed transaction. Assign internal owners and realistic deadlines before opening the data room.

Confirm ownership and authority

Collect formation documents, governing agreements, amendments, ownership ledgers, equity awards, and prior approvals. Reconcile the ownership schedule to the underlying records, including promised equity and transfers that were never fully documented.

Have counsel identify the board, manager, member, or shareholder approvals required by applicable law and the governing documents. Check transfer restrictions, rights of first refusal, and owner disputes. A founder’s operational control does not necessarily establish authority to approve the sale.

Make the financial story traceable

Assemble financial statements, tax returns, bank reconciliations, debt schedules, and receivable and payable aging reports. Explain differences between tax reporting, management accounts, and financial statements. Support proposed earnings adjustments with records, particularly owner compensation, related-party expenses, and claimed nonrecurring costs.

Review payroll and sales-tax filings, outstanding assessments, audits, and filing gaps with your tax advisor. Identify customer deposits, deferred revenue, inventory issues, and seasonal working-capital needs. Separate historical results from forecasts and document the assumptions behind projections.

Map contracts and required consents

Locate signed customer, supplier, lease, loan, distribution, and software agreements, including amendments and side letters. Flag expiration dates, termination rights, exclusivity, unusual pricing commitments, and defaults.

Create a consent schedule identifying assignment restrictions and change-of-control provisions. Their application depends on the contract and transaction structure. An equity sale does not automatically avoid consent requirements. Assign responsibility for each approval and agree on when counterparties may be contacted so diligence does not disrupt important relationships.

Review people and intellectual property

Prepare a workforce summary covering compensation, benefits, accrued obligations, contractor arrangements, and key-person dependencies. Review employment disputes, classification issues, incentive promises, and potential transaction payments with counsel.

Inventory trademarks, software, domains, patents, trade secrets, and important licenses. Confirm which entity owns or licenses each asset and locate employee and contractor invention or copyright assignments. Check restrictions on transferring licensed technology and unresolved ownership claims. Missing paperwork should be addressed through a proper corrective process, never by backdating records.

Identify compliance issues and liens

Collect permits, licenses, insurance policies, claims histories, regulatory correspondence, and material dispute records. Include environmental matters where relevant. Review cybersecurity incidents, remediation, privacy practices, and significant vendor dependencies; a buyer needs to understand unresolved exposure and operational gaps.

Reconcile secured debt with appropriate lien searches and the underlying loan documents. Identify payoff amounts, release requirements, and guarantees that need separate attention. Paying a loan and obtaining the necessary lien releases and guarantor discharges should be coordinated as distinct closing steps.

Set the rules before sharing

Put a tailored confidentiality agreement in place and define permitted recipients, uses, security expectations, and return or destruction obligations. An NDA does not itself authorize disclosures prohibited by contracts or privacy law.

Minimize personal information. Use redacted or aggregated workforce and customer data where possible, and have counsel assess the legal basis and safeguards before sharing sensitive records. Keep legal advice and potentially privileged materials outside the buyer’s data room pending counsel’s review. Confidentiality language alone does not ensure that privilege survives disclosure.

If the buyer competes with you, have antitrust counsel control exchanges of pricing, customer-specific margins, future strategy, and other competitively sensitive information. Use staged disclosure, aggregation, or a properly structured clean team when appropriate. A clean team requires restrictions on membership, access, use, and reporting; it is not a blanket exemption from antitrust law. Continue operating independently before closing.

Build a usable record of disclosure

Organize a secure data room with an index, consistent filenames, version control, individual access permissions, multifactor authentication, and an access log. Designate one person to coordinate requests, with legal and financial review where needed. Track missing items and distinguish “not applicable” from “not yet located.”

Maintain an issue list with supporting facts, corrective steps, and unresolved questions. Correct inaccurate answers promptly. Work with counsel to carry required disclosures into the purchase agreement’s disclosure schedules. Uploading a document does not necessarily satisfy the agreement’s disclosure requirements or eliminate liability.

Start preparation early enough to resolve gaps before they become negotiating pressure. Learn more about LMB Partners’ mergers and acquisitions practice or schedule a consultation to discuss preparing your business for sale.

This article provides general information, not legal or tax advice for a particular transaction.