The Newcomer's Guide to M&A, Part3
Mastering Due Diligence Without Getting Overwhelmed
So, you've found a business that aligns with your values, vision, and goals. You’ve signed the Non-Disclosure Agreement (NDA) and had a great first conversation with the owner. You're feeling good. Now comes the part that separates daydreaming from deal-making: due diligence.
This typically happens right after you’ve signed a Letter of Intent (LOI). It’s the buyer’s opportunity to dig in and make sure the story they’ve been told holds up.
If the phrase "due diligence" makes your palms sweat, you're not alone. For first-time buyers (and, honestly, even seasoned ones), this stage can feel like drinking from a firehose. But it doesn’t have to be that way.
In this post, we’re breaking down how to approach due diligence with clarity and confidence—even if you're not a finance wiz or legal expert.
What is Due Diligence, Really?
Due diligence is the process of verifying everything you think you know about the business. You’re not just looking under the hood, you’re lifting the entire car and checking for rust, leaks, and duct-taped parts.
That process can look a little different depending on the deal. Whether it’s an equity purchase or an asset deal, how much time you have, and even the seller’s unique situation, all of that shapes how deep and wide you’ll need to go.
This includes (but isn’t limited to):
• Financials (think revenue, profit margins, cash flow)
• Operations (supplier relationships, logistics, customer service)
• Legal (corporate structure, contracts, intellectual property [IP])
• People (employee retention, leadership roles, org chart)
• Risks (industry trends, concentration issues, compliance gaps)
The goal? No surprises, no sleight of hand. What you see should be what you get.
Build Your Due Diligence Game Plan
Before you dive into the data room, it helps to sketch out a basic plan. Nothing fancy, just enough structure to keep things moving forward.
Assemble your core team. Think lawyer, CPA, or maybe an experienced operator or advisor who understands the business model.
Know your dealbreakers. High customer concentration? Messy margins? Make a short list of things that would be red flags for you.
Set a timeline. Due diligence can drag if you’re not intentional about it. A soft deadline (say, 45-60 days) gives everyone something to work toward.
How to Keep from Spiraling
Start With a Checklist
Even if your lawyer or CPA is handling the heavy lifting, you need to know what you’re looking for. A simple due diligence checklist can help you track progress and avoid missing key areas. (We’ll include a sample at the end of this post!)Ask Questions Like a Curious Friend
Don’t worry about sounding inexperienced. Some of the most powerful questions are the simplest ones: How did you come up with your pricing? What’s your customer retention like? What keeps you up at night?Get Help (and Don’t Wait Too Long)
Hire pros early. An experienced attorney or accountant who knows small business M&A can catch issues you might miss. Pro tip: Loop in legal counsel before signing the LOI. They can often spot language that could cause problems down the road.Ask Smart Questions, Not Just Big Ones
It’s easy to ask for “financials” or “contracts,” but go a step further.
For example, ask for the top customers by revenue or the most critical vendor relationships. These give you a clearer picture of how the business actually runs day to day.
And when it comes to core assets (like IP, product designs, or key content), ask: “Can you confirm the company fully owns its key assets with no outside claims or restrictions?” That simple question can prevent major headaches later.Understand Red Flags vs. Reality Checks
Every business has quirks. Maybe some systems are outdated or the founder hasn’t raised prices in 5 years. That’s not always a dealbreaker—it’s a conversation starter.Remember the "Why"
It’s easy to get stuck in the spreadsheets. Come back to your north star: Why are you doing this? What kind of business do you want to run? Due diligence isn’t just about vetting numbers; it’s about making sure the heart and soul of the business align with yours.
A Few Rookie Mistakes to Avoid
• Not asking for source documents (like bank statements or tax returns)
• Believing everything in the Confidential Information Memorandum (CIM) is up-to-date (it rarely is)
• Ignoring customer reviews or employee sentiment
• Rushing through just to "get it done"
You Don’t Have to Know Everything—You Just Need to Know Enough
You’re not expected to be a lawyer, accountant, and operator all in one. But you do need to know enough to ask smart questions, spot inconsistencies, and stay grounded through the process.
Due diligence can feel overwhelming, but it’s really just structured curiosity. You’ve already done the hard part by getting this far. Now it’s just about asking the right questions.
With the right approach and the right people in your corner, you can go from nervous buyer to confident owner.
👉 Stay tuned for Part 4, where we’ll unpack how to actually fund your deal and the different paths you can take to get it done.
Don’t Want to Miss a Thing?
We’ve got you.
[Click here] to grab our no-fluff due diligence checklist—made to keep you organized, on point, and way less stressed. Pop in your email and it’s yours.
Disclaimer: This post is based on our experience supporting buyers through the M&A process and is intended for general informational purposes. It does not constitute legal or financial advice. Always consult a licensed professional for guidance specific to your situation.