How Sellers Can Control Diligence Without Slowing the Deal

Every founder who has been through a business sale remembers when the diligence requests started arriving.

The first list is manageable. Three years of tax returns. Financial statements. A customer list without contact information. Copies of major contracts. Then the requests become more specific. The buyer wants to understand the top customer relationships. They want to speak with key managers. They want to review supplier agreements. They want to walk through the facility and understand how the business operates without the founder.

At that point, diligence moves beyond financial verification and into the relationships and information that actually run the company.

This is one of the most predictable tensions in a lower-middle-market transaction. Sellers generally make one of two mistakes. Some treat every diligence request as a threat and restrict access so heavily that the buyer begins questioning what is being withheld. Others provide sensitive information too early, before a buyer has demonstrated that it has the capital, intent, and commitment to complete the acquisition. Both approaches create unnecessary risk.

Axial’s review of 75 lower-middle-market deals that broke after an LOI in 2025 found that non-financial diligence findings were the largest single cause, accounting for 25.3% of failed transactions. Another 21.3% failed because the buyer’s quality-of-earnings work found EBITDA discrepancies. 

The better approach is to understand what the buyer is trying to verify.

A buyer who has been told that customer relationships are durable needs evidence that those relationships can continue after a change in ownership. A buyer who has been told that the management team can operate independently needs to understand how those managers actually run the business. A buyer underwriting current margins needs to understand whether supplier pricing, customer contracts, or operating practices could materially change after closing.

The buyer is testing whether the business they are buying matches the business they were shown.

Customer relationships, employee capabilities, supplier dependencies, operational processes, and the founder's actual involvement in the business all determine how transferable the earnings are. Data can document the numbers. It cannot completely demonstrate how the company functions when the founder is no longer making every important decision.

Early diligence can establish the financial and operational foundation of the business while protecting information with a higher confidentiality risk. Customer names and contact details, employee compensation information, supplier pricing, proprietary processes, and competitively sensitive information can be reserved for a later stage when a buyer has demonstrated meaningful commitment to the transaction.

Not every buyer who signs an NDA and requests data is equally serious. Some may lack committed capital. Others may be exploring the market without a defined acquisition strategy. A well-run process identifies genuine buyers early and increases access as those buyers demonstrate seriousness.

The objective is not to keep buyers away from the business. It is to make sure that the right buyer receives the right information at the right stage. A seller does not need to disclose everything on day one. But everything that materially affects the business must eventually be addressed.

The strongest sellers understand that distinction before the diligence process begins. They prepare the sensitive information, establish a disclosure sequence with their advisors, and ensure that when buyers receive deeper access, they receive information that has already been organized, explained, and supported.

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In a service business where the owner personally holds the key customer relationships, some of the goodwill may belong to the individual rather than the company. Under the Martin Ice Cream doctrine (T.C. Memo 1998-54), personal goodwill can potentially be sold directly by the owner to the buyer outside the corporate entity. For a C corporation, this can reduce double taxation by keeping the portion allocated to personal goodwill out of the corporation’s taxable sale proceeds.

The 16th annual Pathway to Platinum conference will take place October 22-23 in Portsmouth, New Hampshire, for CEOs, CFOs, COOs, and owners of privately held middle-market businesses. The invitation-only program focuses on the decisions that increase company value, including profitable growth, capital allocation, company culture, AI adoption, and the CFO’s expanding role in value creation. The event is aimed at owners looking to strengthen performance and position the business for a future transaction or succession. Details →

Acquicon 2026 will run October 19-21, bringing together more than 400 vetted operators, capital providers, and M&A advisors focused on acquisitions, scaling, and exits. The program includes deal labs, workshops, and sessions on valuation, integration, capital strategy, and enterprise value creation. Roughly half the audience is expected to be business owners and founders, with the remainder split between capital providers and deal advisors. Details →

RCP Advisors surveyed 51 North American small-buyout managers and found that roughly 80% expect at least one full portfolio-company sale over the next 12 months, while about 50% expect multiple exits. Another 54% expect distributions to increase meaningfully, and RCP’s own fund distributions through July 24 were already 156% above the same period in 2025. The report also highlights the valuation gap in private equity: companies worth $25 million to $100 million entered deals at a median of 8.8x EBITDA in 2025, compared with 13.4x for businesses worth $500 million to $1 billion. PitchBook data cited in the report show the smaller segment has generated a 39% pooled gross IRR on realized deals since 2009, supporting the case that lower entry prices and operational value creation continue to make small buyouts attractive. Read →

Corey Kupfer challenges some of the conventional wisdom that gets repeated around acquisitions and negotiations without enough scrutiny. Corey has spent more than 35 years structuring and negotiating deals, and in this episode he looks at why deal advice that sounds universally true can break down once objectives, leverage, timing, risk, and the people involved change. Kupfer’s broader point is that good dealmaking requires clarity about the outcome you actually want, rather than mechanically applying familiar rules.