Due diligence mistakes compared between buyer and seller, and the one both share

Buyers and sellers make different diligence mistakes, and each side sees the other's clearly while missing its own. The nine below split into four by buyers, four by sellers, one by both.

For each mistake, we explain how it causes damage and what to verify instead. We skip duration and cost, because these mistakes stay the same at every scale.

What to take away

The buyer's four

Verifying the accounts, not the cash. The management accounts reconcile to the statements, the statements reconcile to the tax filings, and the buyer stops. None of that proves the money existed. What to verify instead: that revenue in the accounts arrived in the bank, customer by customer for the largest ones, and that costs in the accounts left it. This is the ordinary work of forensic accounting applied lightly, and it is the only test that catches revenue recorded but never received.

Talking to nobody. The data room is read, the seller is interviewed, and no customer, supplier or employee is ever asked anything. What to verify instead: late in the process, carefully, and with the seller's agreement, whether the largest customers know who they buy from and what would make them stop. The diligence guide explains why buyers leave this late; the mistake is leaving it out.

Letting each specialist run unscoped. The accountant finds accounting issues, the lawyer finds legal ones, and nobody weighs them against each other or against the question of whether to proceed. What to verify instead: before anyone starts, the list of findings that would end the deal, in order, so that the specialists look there first and the buyer decides what each finding leads to.

Finishing diligence and signing the original agreement. Findings are made, discussed, and then the contract drafted before diligence is signed unchanged. What to verify instead: that every finding has landed in the agreement as a price adjustment, an indemnity, an escrow, a condition, or a right to walk away if something specified occurs before closing. A material adverse change clause is one such right; what it covers is drafted by the lawyer from what diligence found, not copied from a template.

The seller's four

Answering in pieces. Each question answered when it arrives, from whatever is to hand, with no view of the whole. What to verify instead: that every answer given is consistent with every other, because the buyer's team is checking exactly that, and an inconsistency between two honest answers reads as one dishonest one.

Tidying the data room. Removing the awkward contract, the settled dispute, the year that went badly, on the grounds that they are not relevant. What to verify instead: that the room contains what a buyer would find anyway, because a buyer who finds something missing stops trusting what is present. The seller preparation year is when the awkward items are dealt with; the data room is not where they are hidden.

Disclosing in conversation. The concentration, the key employee's likely departure, the license question, mentioned in a meeting and never written down. What to verify instead: that every disclosure is in writing, in the room, dated. A verbal disclosure protects nobody; a written one frames the issue and limits the warranty claim later.

Treating questions as accusations. The buyer asks why a margin moved, and the seller hears an allegation. What to verify instead: what the question is actually testing. Most diligence questions test durability, and a seller who answers the durability question directly, rather than defending their honesty, shortens the process and keeps the price.

The one they make together

Letting confidentiality lapse in the middle. Diligence is when the most people know the most about the sale: advisers, lenders, the specialists on both sides, the staff who notice the auditors. Both sides assume the other is holding the line. What to verify instead: who on each side knows, what they have signed, and what the plan is if a customer or employee asks. A leak here damages the business both parties now have an interest in, and the intermediary's process, if there is one, exists partly to hold this stage together.

The test for any finding

Whichever side you are on, ask of every finding: what does this change? If the answer is the price, structure, term, condition, or decision, it was diligence. If the answer is nothing, it was research, and that time came at the cost of findings that matter.

The deal structures page sets out where findings usually land.

Common questions