When I was selling my business -– in the depths of Covid winter 2020-21 — the due diligence process stressed me out so much that I moved out of my house.
Unable to deal with the demands of family life on top of the sale-related tasks, I retreated to our house’s basement studio apartment, locked the door, and told my family I’d see them after the sale closed.
It was a shock to discover how difficult due diligence was. Going into the sale, I felt ready. I’d worked with an accountant and prepared my financials. As a result, I imagined I’d be free to focus on keeping my business humming and revenue high, to support the buyer paying my asking price.
I was so, so wrong.
Instead, my buyers bombarded me with questions about business metrics I’d never even considered. There were daily scrambles to come up with additional statistics and operations documentation I hadn’t realized a buyer would need. And this went on for months, as due diligence slowly ground along.
Eventually, I felt unable to deal with anything but the twin pressures of due diligence and the urgent need to keep revenue high. I begged my husband to cover all the kid duties and household errands, because I was completely overwhelmed. In part, I sold to that first buyer because I couldn’t imagine re-marketing the business and starting this high-stress phase of selling the business over again with another buyer.
Why managing due diligence + operations is stressful
Since completing my sale, I’ve learned that my experience of the due diligence phase as almost unbearably intense is actually fairly common.
For Gamal Codner, co-owner of the personal-care brand Fresh Heritage, the due diligence phase he went through in 2021 was “like managing two businesses at once: one, the one you are running and two, the one you are selling. It is easy to keep your foot off the gas to deal with urgent issues in the transaction.”
Likewise, when SaaS startup Gather sold in 2022, co-founder Alex Hilleary said the most challenging part of the sale was “balancing the day-to-day stuff in case the acquisition didn’t work out, while also dedicating most of our energy to making the acquisition work.”
Why is juggling due diligence and business operations so stressful?
Most sellers only sell one business, so you’re often a newbie at this, as I was. It’s the biggest financial transaction aside from a home purchase that most people ever undertake, and a lot’s riding on the outcome. Buyers tend to view a business differently than sellers, so sellers don’t realize all the questions they’ll be asked. There are a million things to do, and a lot of pressure.
How can you master the balancing act that is selling your business while also striving to keep the business running in tip-top form? We asked recent sellers about their experiences, and got tips from a business broker who’s also sold a business.
Make sure you’re truly ready to sell
You’d think any entrepreneur who makes it to the due diligence phase is ready to sell their business, but that’s far from reality.
But for some founders, especially those who connect with a good-fit buyer rather quickly, this is when things get real, and you have to come to terms with actually letting go of the business you’ve built, sometimes even dedicated years of your life to. Sometimes that results in sellers questioning their next steps or dragging their feet during due diligence, or struggling to keep up with the demands of the buyer while jumping through mental hoops.
“There can be a lot of emotional components to selling the business,” said broker Barbara Taylor of Allan Taylor & Co. After enduring a painful due diligence process in 2006 selling the mobile-espresso chain she built with husband Chris Taylor, she became a broker, in part to help other sellers create less difficult exits.
“You’re selling the thing you created, your baby. Also, maybe you have partners or family members and there’s tension around this — some are happy you’re selling and some aren’t.”
Make sure you’re truly ready to sell the business, including being emotionally ready to move on.
Expect it to be hard
First-time buyers tend to underestimate just how grueling the due diligence process can be. They often anticipate the challenge of finding a buyer, but not the months of due diligence that follows.
Simply expecting this part of the sale to be difficult — instead of allowing it to be a surprise — can help you prepare mentally and logistically to get through it.
Also know that you’re not alone in finding this juggling act to be the biggest challenge of your sale. Founders don’t often talk about it because that could put the transaction at risk, but this is hard for lots of people who go through it.
“In most scenarios, it’s a grueling process,” Taylor said. “What you’re going through is normal.”
Prioritize taking care of yourself
“It was very all-encompassing,” he said of the due diligence phase. “I was working two full time jobs, not having time to sleep, and not feeling great.”
Nagel advises coming up with a plan for how you will avoid burnout and stay focused during this high-demand phase of the sale. Efficient work habits really count during due diligence.
During his sale, Nagel — who has ADHD — noticed that he tended to be up worrying about the deal, which drove him to check email by 5 a.m. Then, he’d roll straight into due diligence tasks and business-operational issues like reviewing customer files. Next thing he knew, it’d be midnight. After seeing how hard it was to carve out time for even basic self-care such as food and sleep, he built his next startup around an app that blocks distractions online, Focus Bear.
“My app helps me do meditation first, instead of checking email,” he said.
Prepare, prepare, prepare
A lot of buyers want to wait to pull their paperwork together until they have a motivated buyer on the hook, noted Taylor. But procrastinating on financial preparation and other business documentation can mean a longer due diligence process, as you scramble to put together needed disclosures on the fly. That can create more work for you during due diligence, taking time away from operations issues, and can possibly even imperil your deal.
“The last thing you want is delays,” she said. “Time kills deals. The longer this stretches out, the more time the buyer has to maybe decide they don’t want to do it.”
To make sure you have your ducks in a row, consider establishing a broker relationship early, a year or more before you think you want to sell, Taylor said. Experienced brokers know what buyers look for in a deal, and can advise you on all the paperwork you’ll need. Once due diligence starts, your broker can also run interference for you, answering some queries and finding information for your buyer. That’ll allow you to keep more focus on day-to-day business tasks.
One way to make juggling easier is simply reducing the number of balls you have to keep up in the air. Completing key due-diligence prep tasks prior to signing an LOI and beginning due diligence is one of the best ways to cut back the number of different responsibilities you’ll have during the sale process.
A few specific areas that it pays to complete prior to entering due diligence:
Do you have any equipment, inventory, or real estate that’s part of your business? If so, get it appraised early, said Taylor. Why? It gives you a chance to create a more accurate valuation, and possibly to get a second appraisal if you don’t like the figures you get initially.
If you go into due diligence without appraisals on any physical assets, the buyer will conduct their own appraisals, Taylor noted. Then, you’ll be stuck with the figures their appraiser provides.
Lock down IP
The rights to intellectual property are often at the center of an acquisition, particularly in tech.
“Make sure your IP agreements are done from day one,” Nagel says. “Then, there’s no mad dash to get them in place.”
Look at business structure
It always seems simpler and easier to have all your business activities under one company umbrella — but that can become a liability during your sale.
In Nagel’s case, he had a consulting business alongside Smooth Messenger that wasn’t to be part of the sale. That meant the two business units had to be legally disentangled during due diligence so the tool could be spun off and sold on its own, adding time-consuming complexity.
Clean your books
Lots of founders think they have clean accounting records, only to discover during due diligence that’s actually not the case. Depending on the size and complexity of your business, a bookkeeper might not be enough.
“Everyone says have clean books, which I always thought we did — and we did, for tax purposes,” said Brandon Pindulic, who sold OpGen Media, a marketing agency, in March 2021. “But when you have finance people from PE backgrounds going through your books, you realize how many blindspots you have if you never invested into at least a fractional CFO.”
Get help from pros — or your staff
Another way to make juggling easier? Get other people to handle some of the balls instead of trying to keep them all going yourself. Understand that it’s likely going to be impossible for you to do all the needed work in the compressed time frame of a business transaction.
The only question is who you will enlist to help you.
Opinions vary on when to tell employees you’re considering selling your business. Depending on your situation, you may want key staffers to help you create needed documentation or run the ship while you focus on the sale. If so, an employee or two may need to be sworn to secrecy, so they can take some of the workload off your shoulders.
That’s what Ted Mikulski did when he sold Newor Media, a programmatic ad-bidding platform, in August 2021. When due diligence became longer and more in-depth than he expected, Milulski leaned on his first employee, who later became a partner and co-founder, to run the business.
“I have bought and sold many income-generating websites in my career, but a company of this size requires a great deal of diligence depth,” Mikulski said. “Luckily my co-founder Megan Rafferty was able to run things smoothly while I was heavily involved in the sale process.”
With Smooth Messenger, Nagel didn’t want to inform staff until the sale was complete. Instead, he hired two support people outside the company to help take some of the burden off his shoulders and streamline the process.
His broker worked solely on buyer negotiations, while a Pakistani administrator he hired on Upwork focused on creating needed documentation. Because the company’s revenue numbers had been publicly disclosed in the past, Nagel said he didn’t have any privacy concerns in hiring an overseas contractor to help compile his financials.
Hang in there; you’ve got this
As you’ve seen, the stress of keeping your business going while you also actively negotiate with a buyer is keenly felt by startup sellers. It’s a difficult balance to strike, in terms of how much energy to put into sale activities vs business operations.
Even as you pick apart the minute details of your business, keep your eye on the big picture. You’ve built an asset that’s valuable, one that’s attractive to buyers, and that’s something to be proud of. On low days, remind yourself why you’re doing this and what you’ll find on the other side. Think about all the opportunities that await you. You’ve worked hard for this, and now it’s time to reap the benefits.
Broker Barbara Taylor’s husband is named Chris Taylor. A previous version of this story misstated his first name. You can learn more about our reporting process here.