Resource
Sell-side due diligence checklist for founders
What to prepare before a buyer's adviser examines your numbers: the financial information they will request, the earnings adjustments that survive review, and the net debt and working capital positions where sale proceeds are actually decided.
Written by CA Pranay Bhansali, Founder & Principal, Volaxi — Chartered Accountant (ICAI), former senior buy-side research analyst.
Last reviewed September 2026 · LinkedIn
Checklist at a glance
| Stage | What to prepare | What it protects |
|---|---|---|
| Reporting basis | Monthly management accounts reconciled to statutory financials | Prevents the buyer discounting numbers they cannot tie out |
| Quality of earnings | Evidenced add-back schedule with support for each adjustment | Keeps founder-driven add-backs in the price rather than struck out |
| Revenue durability | Revenue by customer and month, contract terms, churn history | Defends the multiple against concentration and retention concerns |
| Net debt | Schedule of every debt-like item, defined before the SPA drafts | Avoids late deductions from equity value at completion |
| Working capital | 24–36 months of monthly working capital with seasonality explained | Keeps the peg near a genuinely normal level |
| Forecast support | Budget-to-actual history and a driver-based current plan | Supports earn-out terms and forward-looking value |
What is sell-side due diligence?
Sell-side due diligence is analysis a seller commissions on their own business before a buyer's adviser examines it. It is not an audit and it is not a valuation. It is a rehearsal of the questions a buy-side team will ask, run early enough that the answers can be evidenced rather than improvised.
For a founder-led business the practical value is simple: issues found by your own team are corrections; the same issues found by the buyer are price reductions. Every unexplained gap in the numbers is read as risk, and risk is priced.
When should a founder start preparing?
Three to six months before going to market is the working range for most lower mid-market businesses. Working capital and earnings quality are both assessed over a trailing period, so remediation that begins after a term sheet arrives cannot change the history a buyer will test.
If the business has never been audited, has multiple entities, or recognises revenue over time, allow the longer end of that range.
Financial information to prepare
The buyer's adviser will ask for the same core dataset on nearly every deal. Assembling it in advance shortens diligence and signals a well-run business.
- —Monthly trial balance for 36 months plus the current stub period
- —Statutory financial statements, audit adjustments and management letters
- —A reconciliation between management accounts and statutory results
- —Revenue by customer, product and month, with contract terms and renewal dates
- —Aged debtors, creditors and inventory listings at each month end
- —Debt agreements, leases, related-party balances and contingent obligations
- —Payroll register and headcount by function
- —Budgets, forecasts and board packs for the review period
Which earnings adjustments survive buyer review?
Founders routinely add back items that a buy-side team removes again, and the disagreement is almost always about evidence rather than principle. An add-back survives when it is quantified from source data, clearly non-recurring or clearly pro forma, and consistent with how the business will operate after completion.
Personal expenses run through the business, above-market owner compensation, one-off legal settlements and genuine restructuring costs are normally accepted when supported. Optimistic run-rate adjustments for contracts not yet signed, recurring 'exceptional' costs that appear every year, and unevidenced cost savings are not.
- —Build the add-back schedule with a supporting document reference per line
- —Label each adjustment recurring, non-recurring or pro forma
- —Show a reported-to-adjusted EBITDA bridge by year
- —Test that no adjustment is also captured in net debt or working capital
Net debt and working capital: where price actually moves
Headline price is agreed on a multiple; final proceeds are decided by the net debt schedule and the working capital peg. Sellers lose value here more often than on the multiple itself, usually because debt-like items surface late and the peg is set from a snapshot that happens to be favourable to the buyer.
Prepare both before negotiation. Define in writing which items you consider debt-like, and present a monthly working capital series long enough to show the true normal range and any seasonal cycle.
- —List every debt-like item: deferred consideration, tax arrears, accrued bonuses, leave balances, dilapidations, deferred capital expenditure
- —Identify restricted or trapped cash that cannot be treated as free cash
- —Present 24–36 months of monthly working capital with DSO, DIO and DPO
- —Explain any step change in payment or collection behaviour in the review period
- —Decide early between a locked box and completion accounts, and model both
Common findings that reduce price
The same issues recur across founder-led sale processes. None of them are fatal when identified early; all of them are expensive when a buyer finds them first.
- —Management accounts that do not reconcile to statutory financials
- —Revenue recognised earlier than the contract supports
- —Customer concentration without contractual protection or renewal history
- —Creditor stretch in the months before going to market
- —Capital expenditure deferred to flatter cash flow
- —Undocumented related-party transactions and informal owner arrangements
- —Provisioning for bad debt or obsolete inventory that has not kept pace with ageing
How to use this checklist
Work through it once as an inventory of what exists, then a second time judging each item as a buyer's adviser would: is it evidenced, is it consistent, and would I accept it if I were paying for it?
The buy-side companion to this page is the full financial due diligence checklist, which sets out the analysis a buyer's team performs across earnings, net debt, working capital and cash conversion.
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