A letter of intent feels like the finish line. It isn’t. For most middle-market acquisitions, the real work starts after both sides shake hands on price and terms, when the buyer’s team sits down to confirm the business is what the seller said it was. That confirmation process decides whether a deal closes on schedule, closes at a lower price, or doesn’t close at all.
Key Takeaways
- Diligence usually runs 30 to 90 days for middle-market deals and touches financials, contracts, operations, and legal exposure.
- Sellers who prepare a clean data room before the LOI stage tend to close faster and lose less leverage during negotiation.
- Buyers reprice or walk away most often over customer concentration, unclear liabilities, and inconsistent financial reporting.
Why the Real Deal Happens After the LOI
An LOI is built on representations. The seller states the revenue figures, the customer relationships, the state of the equipment, and the buyer prices the deal accordingly. Diligence is where those statements get tested against source documents, bank records, contracts, and interviews. A thorough buy-side due diligence process typically extends beyond financial statements to cover contracts, customer concentration, and pending litigation. Buyers who skip that step, or rush it to hit a closing date, are the ones who inherit problems they never priced in.
Owners on the sell side often misread this stage as a formality. It isn’t. Deal terms get renegotiated during diligence more often than they do during the original offer, and the party with better documentation usually keeps more leverage.
What Buyers Actually Look At
Financial and Tax Records
This is the obvious layer, but the depth matters. Buyers reconcile reported revenue against bank deposits and tax filings, not just the P&L the seller hands over. They check for one-time gains dressed up as recurring revenue, owner add-backs that inflate EBITDA, and any gap between cash-basis and accrual-basis reporting that changes how the numbers read.
Customer and Contract Concentration
A business that gets 40% of its revenue from two customers carries a different risk profile than one with a diversified base, even if the top-line numbers match. Buyers pull the top 10 to 20 customer contracts, check for change-of-control clauses, and confirm whether relationships are contractual or handshake. A key account tied to a personal relationship with the departing owner is a flag, not a footnote.
Legal and Operational Exposure
Pending litigation, unresolved regulatory issues, expired permits, and unfunded liabilities like accrued vacation or pension obligations all surface here. None of these necessarily kill a deal on their own, but they get quantified and either escrowed against, priced into the offer, or carved out of the purchase agreement entirely.
Preparing for the Other Side of the Table
Owners who expect to sell within the next few years save themselves time and money by treating their books as though a buyer’s team will review them next quarter. That means separating personal and business expenses cleanly, formalizing verbal agreements into written contracts, and keeping financial statements consistent from year to year rather than adjusting methodology whenever it’s convenient.
Businesses that manage sales through more than one channel face an added layer here, since inconsistent reporting across platforms is one of the fastest ways to raise questions a buyer’s accountant will want answered before wiring any funds.
The Bottom Line
Price gets negotiated in the term sheet. Trust gets built, or broken, in diligence. Buyers who go in with a structured checklist and sellers who prepare their records in advance both come out ahead, because the deals that fall apart late almost always trace back to something that could have been caught, documented, or disclosed weeks earlier.
