Imagine for a moment that someone hands you a map to a brilliant destination, but you have no idea where you are in the first place. A map will not be much good if you don’t know where you are starting from. Pre-due diligence is about finding out where you are financially, both business-wise and personally. This information leads to better planning, with priorities mapped out to enhance the company’s value and minimize the owner’s risk. A business owner who incorporates pre-due diligence into normal business operations, well in advance of offering the business for sale, can build value, be better organized and more prepared for a sale offer. The goal is to maximize value and minimize risk to your whole financial picture — business and personal — so you get the most when a purchase offer occurs, or you decide to exit.

The bottom line? Achieving a strategic succession that gets you where you want to be starts with due diligence that is done early. The discovery process in pre-due diligence provides an accurate baseline from which to enhance the value of your company and minimize risk.

Due Diligence vs Pre-Due Diligence

The process by which a prospective buyer of a business conducts a legal, financial and general business operation investigation in preparation for a possible purchase transaction is due diligence.

Pre-due diligence is an early seller-side discovery done well before entering a potential sale. Ideally, years before. This analysis tells the owner what the value of their company is and identifies any broken business drivers or risk factors. The discovery process should include a personal financial review for a complete picture. The owner then sees a full view of their business and personal financial status, built with details and insights.

The benefit of early pre-due diligence is that a business owner will have the time to enhance the value of their company by fixing what’s wrong and de-risking their business. Most importantly, it gives the business owner a reality check into their biggest potential asset: their business. Additionally, this analysis done properly answers the question, "how much money would I have if I sold right now?" This is a good reality check that includes the owner’s current personal net worth plus the value of the business. With this information, the owner can consider how much money they need (or want) to retire or exit with, and work towards building value to achieve that goal.

Getting Started

Gathering all of the critical information for pre-due diligence can be tedious and stressful. Having outside expertise to lead the process will allow the owner to stay focused on running and growing their enterprise. Engaging an advisor who will work to understand the owner’s situation in business and life, and who has a network of trusted exit advisory specialists at hand, can take an otherwise potentially painful experience and turn it into a profitable and rewarding one.

How it's Done

The discovery process of pre-due diligence is the most important. One of the best methods is employing a secure cloud-based file, like a data room, that the client owns. For example, each entity (ie: Operating Company, Holding Company and Personal) has a dedicated file room. This hyper-organization tool allows advisors to view all documents at a glance, thereby determine what is missing, where conflicts exist and what areas need attention. For the client and other collaborators, this saves money and time.


A central document data room file will contain business-critical documents like:

  • organizational chart;
  • company history;
  • customer and supplier relationships;
  • intellectual property;
  • contracts, leases, bank lines of credit;
  • financial statements (five years);
  • corporate tax returns and assessments;
  • key personnel;
  • inventory of business processes, systems and license agreements;
  • capital asset summary;
  • strategic plan and personal financial plan;
  • personal net worth (without the business value);
  • family genogram;
  • wills, insurance, etc.

Your Map to a Successful Exit Outcome

The pre-due diligence process takes time and costs money, yes. But it is a smart and profitable first step towards a successful outcome for an eventual exit. This first phase results three key benefits:

1. A deeper insight into the business;
2. Time to fix broken business drivers which, in turn, will add value to the business;
3. De-risking the business and therefore the owner’s life.

When the time comes to exit, the transition to sale or succession is more likely to be structured the way the owner wants because of pre-due diligence. Business owners who delay doing pre-due diligence risk not having the time to achieve the maximum value of their business and, therefore, also risk leaving money on the table.