One of the biggest mistakes we see business owners make when preparing to sell their business? Waiting until they’re in the middle of a deal to get their numbers in order. What should be a smooth process turns into a buyer losing confidence – leading to delays, last minute renegotiations or deals falling apart entirely.
Whether you plan to sell in the coming months or years, getting your financials “due diligence ready” today is one of the simplest ways to make your business more attractive.
What is Financial Due Diligence (FDD)?
FDD is a critical step in the sale of your business. It involves a thorough assessment of the business’s financial performance, position and any key risks.
The aim is to:
- Ensure the accuracy of financial information provided.
- Assess the quality of earnings.
- Identify any issues that may impact valuation or deal structure.
What Buyers Want to See
Buyers aren’t interested in just ticked boxes on a information request list, FDD is where buyers test the story you’re selling. Here’s what they’re really looking for:
- Robust management accounts — monthly, accurate, and reconcilable to statutory figures
- Clear revenue breakdown — recurring vs repeat vs one-off and/or by product/service line
- Gross margin integrity — consistent tracking and a solid understanding of drivers
- Normalised EBITDA — with clean, well-supported addbacks (not just hopeful assumptions)
- Working capital trends — no nasty swings, plus evidence of cash generation
- Separation from owners — minimal director perks or personal expenses running through the P&L.
If you can provide quality financial information that is easily scrutinised, FDD becomes a formality rather than a potential deal breaker.
Common Red Flags That Delay or Kill Deals
Having worked on both acquisitions and sale mandates, these are the usual suspects that we see when FDD takes place:
- Inconsistent accounts — monthly figures don’t reconcile with year-end or filed accounts
- Messy management accounts — inconsistent, unreconciled, or missing key detail
- Unclear revenue breakdown — no split between recurring, repeat, and one-off income
- Overstated addbacks — inflated or poorly supported EBITDA adjustments
- Weak gross margin tracking — no clear grasp of what’s driving profitability
- Personal expenses in the P&L — director spending that muddies the waters
- Surprise liabilities — unpaid taxes, loans, or deferred obligations off the radar
- Aggressive revenue recognition — booking income before it’s earned
- Lack of supporting documentation — contracts, invoices, or payroll data missing
Run Your Business Like You’re Selling Tomorrow
Getting ready for diligence isn’t just about making a good impression. It’s about running a tighter, more resilient business. The benefits of preparing early include:
- Identify and fix hidden inefficiencies
- Increase margins and improve cash flow before exit
- Strengthen position in negotiations
- Close deals more quickly and with less hassle
Think of FDD readiness as an investment in the business, rather than purely to push a deal over the line.
What You Should Be Doing Now
Here’s your short-list if you’re thinking about an exit from your business:
- Upgrade your management information – Monthly packs should include P&L, balance sheet, cash flow, margin analysis, and KPIs.
- Separate personal and business finances – Clean up shareholder loans, director costs, and non-business spend.
- Start building a ‘data room’ – Keep copies of contracts, leases, insurance, tax filings, and debt agreements. Keep it organised and easily accessible.
- Engage an advisor early – Even if you’re not selling today, the right advisor can help get you in shape for tomorrow.
Final Thought
Don’t prepare for diligence during diligence, its too late. Do it months or years earlier while you still have time to influence the outcome.
If you’re thinking about an exit, one of the best investments you can make right now is making sure your numbers tell the right story and stand up to scrutiny.
Contact Xeinadin Corporate Finance today to find out more.
