What due diligence should companies do before they try to sell their company?
Takeaway: To maximize your company's value and ensure a smooth M&A process, you must conduct your own "reverse due diligence" by getting your legal, financial, and operational house in perfect order before you ever speak to a potential buyer.
Most founders think of due diligence as something that is done to them during an acquisition. This is a mistake. The most successful exits are orchestrated by founders who proactively prepare their company for the intense scrutiny of a sale process long before they ever engage with a potential buyer. This process of "reverse due diligence" is one of the most important things you can do to maximize your company's valuation and ensure a fast, efficient transaction.
An acquirer's due diligence process is designed to find problems. Every problem they uncover, whether it's a missing IP assignment agreement or a messy financial record, creates leverage for them to lower the purchase price or to demand more onerous terms. By finding and fixing these problems yourself before you go to market, you present a clean, professional, and de-risked company, which allows you to negotiate from a position of strength.
Your reverse diligence process should be a formal, internal audit focused on creating a "diligence-ready" virtual data room.
The Pre-Sale Diligence Checklist
1. Corporate Records Cleanup:
Ensure your corporate minute book is complete, with signed board and stockholder consents for all major actions.
Confirm your company is in "good standing" in Delaware and any other state where you are registered to do business.
2. Capitalization Audit:
Audit your cap table with a fine-toothed comb. Ensure every share of stock, every option grant, and every convertible instrument is accurately recorded. Use a professional cap table platform.
Confirm that you have a signed stock purchase agreement and a filed 83(b) election for every founder and anyone who received restricted stock.
3. Intellectual Property Audit:
This is critical. Confirm that you have a signed Proprietary Information and Inventions Agreement (PIIA) from every single current and former employee and contractor. A single missing PIIA can be a major red flag.
Organize all your patent and trademark filings.
4. Commercial Contracts Review:
Create a summary of all your major customer, supplier, and partnership agreements. Pay close attention to any clauses that would require the counterparty's consent to be assigned to an acquirer.
5. Financial and Tax Audit:
Work with your accountant to ensure your historical financial statements are clean, accurate, and GAAP-compliant.
Confirm that all federal and state tax returns have been filed and all taxes have been paid.
By going through this meticulous process before you ever talk to a buyer, you transform your company. You are no longer a chaotic startup; you are a professional, auditable asset. This preparation dramatically reduces the friction in the formal M&A diligence process, shortens the timeline to closing, and gives your potential acquirer the confidence they need to pay a full and fair price for the high-quality business you have built.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.