Due Diligence: The Investigation That Happens After You Sign

The investigation process a buyer (and often a lender) runs after a purchase agreement is signed, digging into financial, operational, and legal records in more depth than what was shared earlier in the deal. For small businesses this can take days to weeks; for larger deals, months.

Why it matters: In many states, either party can walk away during due diligence without cause and recover their deposit, if one exists — which makes this the stage where deals most often fall apart. For a Main Street seller, this is the period where a signed purchase agreement can still unravel, so the real work is preparation before due diligence even starts: clean financials, organized contracts, a straight answer ready for every awkward question a buyer's accountant might ask. Sellers who scramble to produce records during due diligence — rather than having them staged in advance — tend to lose leverage, invite retrading on price, or watch buyers get cold feet simply because the process drags and doubt creeps in. Sellers should expect the process and have documents organized before it starts; a seller can also do due diligence on a buyer, which matters most when the deal involves seller financing or an earnout.

Example (illustrative only): A seller who has three years of clean, accrual-adjusted financials, a current customer contract file, and organized equipment records can typically move a small business through due diligence in two to three weeks. A seller producing the same information ad hoc — digging through shoeboxes and old email threads as requests come in — can stretch the same process to two months, during which buyer enthusiasm (and sometimes financing commitments) can cool.

Larger M&A deals typically run due diligence in three phases, usually sequential to control professional fees: commercial (buyer), financial (buyer's CPA/accounting team), and legal (buyer's attorney). Each phase can take a month or more. Buyers and sellers on both sides benefit from working off a due diligence checklist.

Related terms: Due Diligence Release, Purchase Agreement, Customer Concentration, Reps and Warranties