Due diligence: what buyers look for and how deals fail
What a buyer examines, what they find, and how to make sure nothing found in diligence re-prices your deal.
By Eric Ong Updated 7 min read
Due diligence is where most SME deals die. Not because businesses turn out to be bad, but because something was discovered rather than disclosed.
What a buyer examines
Financial. Three years of statements reconciled to bank records. Revenue recognition. The normalisation adjustments and whether they hold up. Working capital, and what a normal level looks like. Debt, including director loans and hire purchase.
Legal. Corporate records: ACRA filings, register of members, register of controllers, board resolutions, past share transfers and whether they were stamped. Material contracts and any change-of-control clauses. Tenancies. Licences. Litigation and insolvency searches. Employment records including CPF.
Commercial. Customer concentration and tenure. Supplier dependency. Competitive position. The pipeline, and whether it is real.
Operational. Systems, key people, equipment condition, compliance history.
The distinction that decides the outcome
Disclosed issues get priced or warranted. Discovered issues get used as leverage to re-trade the entire deal.
If there is something in your business you would rather a buyer did not find, they will find it, and the cost of them finding it is several times the cost of you disclosing it. Put it in the memorandum, with the mitigation, and it becomes a known factor rather than a reason to reopen the price.
Preparing the pack before anyone asks
Assemble the diligence pack during preparation, not when the first request list arrives. Statements, statutory records, contracts, licences, the tenancy, employment records, asset register, insurance. Index it. Every week you save here is a week of momentum you keep.
The data room
Access granted per buyer and per document, with views logged. Sensitive material such as customer names and staff details is released late, after a term sheet is signed.
Keep trading
The most common cause of a price reduction between term sheet and completion is not a diligence finding. It is a dip in trading because the owner stopped running the business to run the sale. That is precisely what an advisor is for.
What is your business worth?
Two minutes, six questions. You get an indicative range on screen straight away, and the full report by email. Confidential, and no obligation to do anything with it.
Common questions
What documents will a buyer ask for in due diligence?
Expect three to five years of financial statements and management accounts, tax filings, bank statements, the share register and all share transfer documents, constitutional documents and resolutions, leases, key customer and supplier contracts, employment records and CPF filings, licences and permits, insurance policies, and details of any litigation or disputes. The list is long but predictable, which is exactly why it can be prepared in advance.
How long does due diligence take?
Typically two to three months for a Singapore SME, running financial, legal and commercial workstreams in parallel. The variable is not the buyer's speed but the seller's readiness. Where documents have to be created, located or corrected during the process, that time is added rather than absorbed.
What should I disclose and what can I leave out?
Disclose anything a buyer would reasonably consider material, and disclose it early. A problem you raise yourself is a negotiation. The same problem discovered by a buyer's adviser is a question about what else you did not mention, and it damages trust well beyond the issue itself. Sale agreements also carry warranties, so undisclosed problems can follow you after completion.
Can I prepare for due diligence before finding a buyer?
Yes, and it is the highest-return preparation available. Assembling the document set, fixing gaps in the share register, stamping unstamped transfers and reconciling the accounts can all be done before anyone is approached. It shortens the process, removes the findings that reprice deals, and signals that the business is properly run.
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