Why This Stage Breaks Deals
A letter of intent sets a price on the story you told. Due diligence tests the story. If the numbers or contracts don't hold up, the buyer either lowers the price or walks away.
Most problems found here were not hidden on purpose. They were just never written down. That is fixable, but much easier before a buyer is waiting.
The Money
Expect requests for three to five years of tax returns, profit and loss statements and balance sheets, plus bank statements to tie it all together.
The buyer's accountant will compare your recast earnings to the returns. Every add back needs a reason and a receipt. One time income, like selling an old press or a loan coming in, does not count as profit.
Cash that never reached the books cannot be counted at all. Buyers and lenders only pay for income they can see.
The Customers
Buyers want sales by customer for several years. If your top few customers make up more than about 15 to 20 percent of sales, expect a discount or a request to tie part of the price to keeping them.
For suppliers, they also ask which programs you supply, when each ends, and whether you hold the purchase orders directly or through a bigger supplier. A long list of steady, smaller accounts reads better than one big one.
The Contracts
- Leases, including whether the landlord must approve a new tenant
- Customer agreements and terms that change if ownership changes
- Supplier deals, software licenses and equipment leases
- Permits and licenses, and which ones a buyer must apply for itself
Some contracts cannot pass to a buyer without the other side signing off. Knowing which ones early saves a scramble in closing week.
The People
Buyers ask who does what, how long each person has been there, and what they earn. They want to know whether anyone besides you can quote a job, run the floor or keep the biggest customer happy.
A company that runs while you are on vacation sells for more. One where every call goes to you sells for less, or with a long transition attached.
Taxes and Filings
In Michigan, the buyer will want proof your state taxes are paid before releasing the money it holds back. Our guide to the Form 5156 tax clearance and buyer escrow explains how that works.
They will also want your unemployment tax rate and history, which you hand over on a state form before the transfer. See the UIA 1027 notice.
Getting Ahead of It
A good broker builds a data room before the buyer asks, so documents go out organized and on time. Speed here reads as honesty. Fumbling for a lease reads as a problem. The full order of events is on our how a sale works page.
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