GLOSSARY
Due Diligence
In-depth investigation conducted by a potential buyer to verify the financial, legal, operational, and tax information of the business before finalizing the transaction.
Definition
Due diligence is the investigation process a buyer runs after signing a letter of intent (LOI). The goal: verify that what was presented matches reality.
In French-language Quebec documentation, you’ll see vérification diligente used for the same concept.
It’s the equivalent of a pre-purchase inspection on a house, but at the scale of an entire business.
Why due diligence matters to the seller
Even though it’s the buyer who runs due diligence, the seller has every reason to prepare for it carefully:
- A smooth process speeds up the transaction. Delays in due diligence are one of the common reasons transactions drag on, get renegotiated, or fall through.
- Transparency builds trust. A seller with organized documents sends a strong signal: this business is well managed.
- Surprises kill deals. An issue discovered during due diligence — even a minor one — creates disproportionate doubt in the buyer’s mind.
What the buyer typically examines
- Financial: 3-5 years of financial statements, tax returns, accounts receivable, customer contracts
- Legal: pending litigation, key contracts, leases, intellectual property
- Operational: key employees, processes, equipment, IT systems
- Tax: compliance, assessment risks, corporate structure
What every seller should know
- Due diligence typically lasts 30 to 90 days — a broker can help manage the process and avoid overruns
- Prepare a virtual data room before you even receive an offer — it speeds everything up
- Don’t hide anything. An issue disclosed proactively can be managed; an issue discovered by the buyer creates a crisis of trust