Vendor due diligence means doing that work yourself first. You find the gaps, explain the oddities and pull the documents together before a buyer asks. Sales move faster, prices hold better, and you avoid the awkward conversation where a buyer finds something you didn't mention.
Getting the P&L story straight
Buyers rarely walk away because profit is lower than hoped. They walk away because the numbers don't add up, or because the explanation keeps changing.
Make the figures reconcile
Your reported sales should line up with your GST returns, and broadly with your bank deposits. If they don't, there needs to be a clear reason, such as timing differences or deposits that aren't sales. A buyer's accountant will check.
For retail and hospitality, point-of-sale reports by month are a strong support for your sales figures. Keep them for at least the last two to three years.
Back up every add-back
Each adjustment that lifts your adjusted earnings needs evidence. If you're adding back your vehicle, show the lease or running costs. If you're adding back a one-off legal bill, have the invoice and a one-line explanation. If a family member's wages are being added back, be ready to show they don't work in the business.
What you can't do is claim cash income that never went through the books. A buyer won't pay for it, their bank won't lend on it, and it creates problems with Inland Revenue that you don't want.
Explain the bumps
Every business has them. A road closure that cut foot traffic for six months. A big one-off contract that lifted one year's revenue. A spike in wages while you trained new staff. Write a short note on each one so the explanation is consistent every time it's asked.
Show how this year is tracking
Annual accounts can be 12 to 18 months old by the time you sell. Up-to-date monthly management accounts show a buyer how the business is trading right now. If this year is tracking up, it supports your price. If it's down, you'd rather explain it than have a buyer discover it.
What buyers commonly ask for
Financial
- Three years of annual financial statements and tax returns
- Year-to-date management accounts, ideally monthly
- GST returns for the same period
- A schedule of add-backs with supporting evidence
- Aged debtors and creditors
- Details of any loans, leases or hire purchase on equipment
Premises and assets
- The lease, any variations, and the landlord's details
- An asset register with approximate age and condition
- Equipment service records
- Building and compliance documents, where relevant
People
- A staff list with roles, pay, hours and start dates
- Signed employment agreements
- Leave balances and holiday pay records
- Any personal grievances or disputes, past or current
Staff details are usually shared late, under a conditional agreement, and anonymised where possible until then.
Customers and suppliers
- Revenue by major customer, often anonymised at first
- Key supplier agreements and terms
- Any contracts that need consent to transfer to a new owner
Legal and compliance
- Licences and permits, such as a food control plan or alcohol licence
- Health and safety records and any incidents
- Trademarks, domain names and social media accounts in the business's name
- Any current or threatened legal claims
Red flags that stall a sale
Sales that don't match the GST returns. This one needs explaining before anything else.
Wages that look too low. If the business only works because the owner does 70 hours a week unpaid, a buyer will price in the cost of replacing you.
Holiday pay errors. Miscalculated leave entitlements create a liability a buyer doesn't want to inherit. Check the calculations before you list.
A lease with little time left. If there isn't time to negotiate a renewal, flag it early.
No written agreements. Handshake supplier deals and staff without signed contracts are hard for a buyer to rely on.
Set up a data room
A shared folder, organised by the headings above, saves weeks. Your broker controls who sees what and when, so documents only reach buyers who've signed a confidentiality agreement and moved through the earlier stages.
How we help
We review your figures early, prepare the add-back schedule, flag the questions a buyer's accountant is likely to ask and build the data room with you. Most of this work fits naturally into the 6 to 12 months of preparing your business for sale, and it slots into the conditional stage of the business sale process.
It starts with a free, confidential business appraisal, which shows you how a buyer is likely to read your accounts today.