What buyers will ask for

Due diligence is the period between a buyer saying yes and a buyer signing. It is when they stop taking your word for things. If you have a lender in the picture — and for most Main Street sales there is one — the requests will come from two directions at once, and the lender's list is longer and less negotiable than the buyer's.

Gathering these documents before you list does two useful things. It shortens the gap between handshake and closing, which is when momentum dies and second thoughts arrive. And it tells a buyer something about you that no memorandum can: that the business is run properly, by someone who knows where things are.

You do not need every item below. You do need to know which ones you cannot produce, and why, before a buyer discovers it for you. A gap you have already explained is a fact. A gap they find is a discount.

Financial records

Asked for first, every time, and the most common reason a deal stalls. If your books and your tax returns disagree, or if the profit-and-loss statement is reconstructed from memory, expect the buyer's accountant to find it in the first week.

• Federal tax returns for the last three years
• Profit-and-loss statements for the last three years and year to date
• Balance sheets for the last three years
• Bank statements for the last twelve months
• Your add-back schedule, with an explanation of each item
• Accounts receivable ageing, if you extend credit
• Accounts payable and any outstanding debt, with payoff figures
• Sales tax filings and payroll tax filings
• Merchant processor or point-of-sale reports, if you take card payments

Expect the add-back schedule to be interrogated line by line. Buyers challenge one-time costs harder than anything else, because that is where optimistic sellers hide recurring expenses. Have the invoice, the settlement letter, or the receipt for each one. The SDE calculation is only as persuasive as the paperwork sitting behind it.

Legal and corporate records

Your attorney will want these assembled before a purchase agreement is drafted, and the buyer's attorney will ask for most of them independently. The lease is worth pulling out first: a short remaining term or a landlord with an absolute right to refuse an assignment can stop a sale outright, and it is far better to know that in month one than in month five.

• Entity formation documents and any amendments
• Operating agreement or bylaws, and any ownership agreements
• Current business licences and permits, with expiry dates
• Professional or trade licences, and whether they transfer
• The premises lease and any amendments, plus the assignment clause
• Equipment leases and financing agreements
• Customer or client contracts, especially any requiring consent to assign
• Supplier and vendor agreements
• Franchise agreement, if applicable, and the franchisor's transfer terms
• Any pending or threatened litigation, and any past claims
• Insurance policies and the loss history for the last three years

Operations and people

This is where a buyer works out the question underneath every other question: does this business run without you? An owner who holds every customer relationship, quotes every job, and is the only person who knows the pricing is selling a job rather than an asset, and buyers price it that way. Written procedures for the work only you can currently do are worth more than they look.

• Employee roster with roles, tenure, pay, and employment status
• Employment or contractor agreements, and any non-competes in place
• Your organisation chart, however informal
• Written procedures for the work only you currently know how to do
• Equipment list with age, condition, and ownership status
• Inventory list valued at cost, if you carry stock
• Customer list summary — counts and concentration, not names, until closing
• Supplier list with terms and any exclusivity
• Marketing assets: website, domains, social accounts, review profiles, phone numbers

Sequence: what you release, and when

Not everything goes out at once, and a serious buyer will not expect it to. A workable order looks like this. The blind summary goes to anyone who inquires. The full memorandum goes out after a confidentiality agreement is signed. Tax returns, statements, and the add-back schedule follow once you have satisfied yourself the person can actually fund a purchase. Contracts, the employee roster, and supplier terms come during formal diligence, after an offer is in writing. Customer names, and any introduction to your staff, wait until closing is a certainty.

The closing questions — for your attorney, not for us

Some requirements vary by state and by industry, and getting one wrong can delay or unwind a closing. We raise them so you know to ask. We do not answer them, because the answers depend on where you are and what you do. Take this list to your attorney at the first conversation.

• Whether your state requires bulk-sale notice to creditors
• Whether a sales-tax clearance or good-standing certificate is needed
• How each licence and permit transfers, and how long that takes
• Whether the landlord's written consent to assign the lease is required
• How the purchase price will be allocated across asset classes, and the tax effect on you
• Whether liens are recorded against business assets, and how they will be released
• What happens to employees at closing, and any notice obligations
• How customer deposits, gift cards, and prepaid work will be handled

How to hold it all

A single folder, named by category, with a plain index at the front listing what is there and what is deliberately not. Scan what exists only on paper. Name files so a stranger can tell what they are without opening them. When a buyer asks for something and it arrives within the hour, correctly labelled, you have told them more about the business than the memorandum did.

If you have not yet worked out what the business earns on a buyer's basis, start with SDE explained. If you are weighing up whether it is worth listing at all, read the honest odds — most of the factors that decide the outcome are on the list above.