Usually, after a buyer signs a letter of intent to purchase a business and the seller accepts the letter, the buyer will have a specified period of time in which to conduct a due diligence investigation of the seller and the company. During this period, your buyer should have access to your financial and other records, facilities, employees, etc., to investigate before finalizing the deal.

Ideally, you will have collected and examined most of the information the buyer wants, as you prepared your company for sale. The vast majority of it is in the form of paper. The buyer will want to see copies of all leases, contracts, and loan agreements in addition to copious financial records and statements. He or she will want to see any management reports you use, such as sales reports, inventory records, detailed lists of assets, facility maintenance records, aged receivables and payables reports, employee organization charts, payroll and benefits records, customer records, and marketing materials. The buyer will want to know about any pending litigation, tax audits, or insurance disputes. Depending on the nature of your business, you might also consider getting an environmental audit and an insurance checkup.

If your financials were unaudited, and especially if they were prepared in-house, the buyer may want you to pay for updated statements by an accountant of his or her choosing, as a condition of closing the sale. The buyer will then perform an independent financial analysis of your company; for example, the buyer may look at your key financial ratios and examine the trends over time, compare them to industry averages, create projected statements for the business using his or her own assumptions, etc.

A wise buyer will also want to take a look at your facilities, and spend some time "in the trenches" with you and/or your employees as you go about your business. We suggest that you accommodate this request, even if it will cause some disruption of your normal operations. Buyers will be most suspicious if they think you are hiding something. They tend to be more concerned about what they don't know, than they are concerned about minor or even major problems that might turn up in an investigation. If you know that certain problems exist, you're much better off disclosing them and talking about possible solutions, rather than shoving them under the rug.

Buyers will also look the environment your business operates in, including the size and makeup of your market, your principal suppliers and customers, your competition, and your industry. They may ask you for more and more information until you feel overwhelmed! We suggest that you respond patiently, and cooperate as much as you reasonably can. Just keep your mind on the goal — selling your company at a price and terms you can live with — and you will get through this potentially very trying period.

Your own due diligence. You should also do some serious investigating of your own. You'll want to find out the buyer's credit record, management experience, reputation, and the plans he or she has for your company's future operation. This is particularly true if you plan to continue an employment or consulting arrangement with the buyer after the sale, or if some part of the purchase price will be paid into the future though a financing arrangement, or an earnout. However, even if you plan to collect all your cash at the closing, walk away, and never look back, you should satisfy yourself that there's at least a reasonable likelihood that the buyer will be able to operate the business successfully. If he or she fails miserably, there's a stronger likelihood that you may be sued for fraudulently misrepresenting the business's financial state, assets, products, or any other straws the buyer can grasp at.