Serving Clients in Fairfield, Hartford, Litchfield and New Haven Counties

Selling your Business? Don’t be Blindsided by Due Diligence!

Selling your business can be an exciting prospect. A transition from day-to-day operations yields well-deserved time to spend with family, travel, hit the golf course, or even start a new venture.

Before a letter of intent is signed, prospective buyers of your business will typically request financial statements, a summary of key staff, and a description of the products and services you offer. If the buyers remain interested, a few basic terms of the deal will be negotiated and included in a letter of intent, parts of which can be binding and parts of which may be non-binding.

At this point, buyers and sellers typically engage law firms and other advisors to assist in moving the deal to closing. You feel relief that negotiations of tedious provisions in the purchase agreement are in experienced hands, and you get back to managing the day-to-day operations of your business.

Then come the document requests.

Many proprietors are unaware of the administrative rigor involved in the buyers’ due diligence phase.

All of the intimate details of the business that you have built, which are undoubtedly second-nature to you, are completely unknown to the buyers (and, in many cases, the advisors that you have just brought onboard). The buyers have to be sure that they are able to run the business effectively, and that they will not encounter any surprises that could cloud their forecasts of success once you are gone. And, they want to be sure of these things before they buy your business.

While it is tough to be prepared for every question a buyer asks, there are several typical areas of inquiry that a seller should be aware of:

Real Estate

Do you own or lease your business premises? Can you assign all of your leases to the buyers? Are there environmental problems with the property? Are there any encumbrances on the property? The buyers will want to see all documents pertaining to your lease or ownership of the property.

Corporate Organization

Who owns your company? Who manages it? Do you have any subsidiaries?

Compliance and Regulatory

What regulations affect your business? What licenses or permits does your business need to operate? Are you compliant with applicable laws?


Has anyone threatened to sue your business? Has your business been involved in any litigation?

Material Agreements

Be prepared for a request for copies of every contract that your business is currently a party to. This is often the most arduous task for sellers. If you consistently use the same form contract with only slight, immaterial changes in terms, you may be saved from producing each and every one. Some contracts have exclusivity or assignment provisions, which could affect the willingness of the buyer to pursue the transaction.


What credit facilities or other credit arrangements does your business have? Do you need consent of your lenders to enter into a transaction like this?

Employees and Benefits

Be sure to have a list of your employees, their roles, and compensation structure. What benefit plans do you offer? Do your employees sign an employment agreement? Are they subject to noncompete or non-solicitation agreements? How about an employee handbook? Are you vulnerable to any wage or OSHA complaints?

Intellectual Property

What copyrights, trademarks, patents, or other intellectual property does your company own? Can you prove ownership?

Data Privacy

How do you handle sensitive information, like phone numbers, addresses, and credit card information? What policies or practices do you employ to ensure that data breaches do not occur?

Tax Matters

Be prepared to provide at least three previous years of tax returns and any correspondence with the IRS or state tax authorities. Have you been subject to any tax audits? For which states do you collect sales tax, and do you pay income tax?

While every business is different, as is a buyer’s risk appetite, the above areas of inquiry are essential to have in mind when considering the sale of your business. If you can answer the above questions without concern, and have the documentation to back up your responses, you will be in good shape to make it through the due diligence process.

Of course, you should always consult your lawyers and trusted advisors when sharing critical information about your business with third parties. At Chipman Mazzucco Emerson LLC, we have years of experience assisting clients in the sale of businesses big and small. If you are considering selling your business, we stand ready to assist.