Due diligence prep in 2025 is more demanding than ever. Here's what acquirers actually scrutinize, and how to maximize your valuation before they look.
Why the Bar for Due Diligence Has Risen Sharply
Buyers got burned. After the frothy deal environment of 2020 and 2021, a lot of acquirers overpaid for businesses that looked great on the surface and fell apart under the hood. The result is a 2025 buyer market where financial sponsors and strategic acquirers alike are running tighter, more systematic diligence processes than they were three years ago.
For founders preparing to sell, this is not bad news. It just means the preparation work that used to be optional is now table stakes. Buyers are not walking away from good businesses. They are walking away from businesses that cannot prove they are good businesses.
The companies that command the strongest multiples, 4x-8x EBITDA for stable cash-flow businesses and 5x-12x ARR for high-growth SaaS, are the ones that enter a process already organized, already documented, and already anticipating the questions. Everything below is designed to help you get there.
What Acquirers Are Actually Evaluating
Due diligence is not a checklist exercise. It is a risk-assessment exercise. Every question a buyer asks is really asking: "How confident can we be that the revenue we are paying for will still be there after we close?" Understanding that reframe changes how you prepare.
There are typically five risk domains buyers probe in any technology or software business. Each one has direct consequences for your valuation and deal structure.
Revenue Quality and Predictability
This is where buyers spend the most time. They want to understand not just how much revenue you generate, but how reliable it is. Recurring revenue with multi-year contracts trades at a significant premium to project-based or one-time revenue. A SaaS business with 85% recurring revenue and 110% net revenue retention will command a meaningfully different multiple than a services business with the same top-line EBITDA.
Buyers will pull apart your revenue into cohorts. They want to see monthly recurring revenue trends, gross and net churn rates, average contract value by customer segment, and revenue concentration by customer. If your top three customers account for more than 40% of revenue, expect that to be a serious negotiating point, possibly resulting in an earn-out tied to their retention post-close.
Customer and Revenue Concentration
Concentration risk is one of the most common reasons deals get re-traded or structured with buyer-friendly protections. A single customer representing 30% of revenue is not necessarily a deal-killer, but it will trigger a specific escrow hold or earn-out mechanic. Some buyers will require that a key customer sign a multi-year renewal as a condition of closing.
The practical fix is obvious but takes time: diversify your customer base before you run a process. Even getting your top customer from 35% of revenue to 22% over 12 months can meaningfully change how a buyer structures the deal and how much of your purchase price you see at closing.
Technology Infrastructure and Scalability
For software companies, buyers will conduct technical due diligence alongside financial due diligence. This typically means an outside firm reviewing your codebase, your architecture, your security practices, and your technical debt. A codebase that has not been refactored since 2018, a product running on deprecated infrastructure, or a security posture with no SOC 2 documentation are all going to cost you either in price or in negotiated reps and warranties.
Specifically, buyers look at:
- Cloud infrastructure costs as a percentage of revenue (high gross margins, ideally 70%+ for SaaS, are expected)
- Documented engineering processes, including version control, QA, and deployment protocols
- Technical debt that would require significant capital to remediate post-acquisition
- Security certifications, particularly SOC 2 Type II, GDPR compliance, and data handling documentation
- API dependencies on third parties that could create post-close disruption
- Whether the product can scale without a proportional increase in headcount
The Documents Buyers Request in the First 30 Days
Most founders are surprised by the sheer volume of documentation requested early in a process. Buyers use a virtual data room, and the initial document request typically covers 60 to 100 line items. Being organized here signals that you run a tight operation. Being disorganized signals the opposite, and that perception sticks throughout the entire negotiation.
Financial Documentation
Expect to provide three full years of audited or reviewed financial statements, monthly management accounts for the trailing 24 months, detailed revenue schedules broken out by product, customer, and geography, and a current-year budget versus actual comparison. If your books are on cash-basis accounting, a buyer may require a recast to accrual basis, which can be time-consuming and sometimes reveals differences in EBITDA that affect valuation.
For companies running a quality of earnings process (which any serious buyer will require), a third-party accounting firm will normalize your EBITDA by identifying one-time expenses, owner compensation adjustments, and non-recurring items. Getting ahead of this yourself, by preparing a self-QofE memo, accelerates timelines and demonstrates financial sophistication.
Customer and Contract Documentation
Buyers want to see every executed customer contract, with attention to assignment clauses. Many software agreements include change-of-control provisions that require customer consent for an acquisition to transfer the contract. If your agreements do not have clean assignment language, this becomes a closing risk. Review every contract before you start a process. Fix what you can.
Buyers also want a complete ARR bridge, showing how ARR moved month by month over the trailing 24 months, with expansions, contractions, churned accounts, and new bookings each broken out. If you cannot produce this table quickly, your process will stall.
Operational and People Documentation
For any technology business, key-person risk is a real valuation issue. If the founder is the primary customer relationship manager, the lead product architect, and the head of sales, buyers will price in the risk of losing all three of those functions simultaneously. The mitigation is a documented organizational structure with real accountabilities distributed across your team.
Buyers will want an org chart, employment agreements for key personnel, non-compete and non-solicitation agreements, any existing equity or option plans, and documented processes for core functions like sales, onboarding, support, and product development.
How Traffic and Audience Data Affect Content and Media Business Valuations
For technology businesses that monetize audience, content, or media, whether through subscriptions, advertising, or affiliate revenue, the diligence standards are specific and worth understanding separately.
Buyers in this category are not just looking at revenue. They are looking at audience quality, traffic source diversity, and the durability of your traffic in the face of algorithm changes. A newsletter with 200,000 subscribers and 42% open rates is fundamentally different from a website with 2 million monthly pageviews driven entirely by Google Discover. One is an owned asset. The other is rented land.
What Traffic Due Diligence Looks Like in Practice
Expect buyers to request full Google Search Console and Google Analytics access, often for the trailing 36 months. They will look at organic search traffic trends, keyword ranking distributions, and how your traffic responded to major algorithm updates. A business that held steady through the 2023 and 2024 Google Helpful Content updates will be valued very differently from one that lost 40% of its organic traffic and has not recovered.
For email and subscription businesses, buyers focus on list growth trends, churn rates, open rates, and deliverability health. A list that is shrinking is a liability. A list growing at 5%-10% monthly with consistent open rates above 30% is a real asset that buyers will price into their offer.
IP Ownership and Content Rights
Content businesses frequently have messy IP situations. Freelancers who wrote articles years ago may not have signed proper work-for-hire agreements. Images may have been used under licenses that did not transfer rights for commercial resale. Buyer legal teams will specifically audit content rights, and unresolved issues can delay or derail a closing.
The fix is straightforward but takes time: audit your content library, get retroactive assignments from freelancers where necessary, and document every license. This is a low-cost fix before the sale and a high-cost problem during it.
Deal Structure Levers That Buyers Use to Manage Risk
Understanding how buyers use deal structure to manage perceived risk changes how you negotiate. The purchase price is not the only number that matters. How much of that price you receive at closing, and under what conditions, is equally important.
Earn-Outs
Earn-outs are the most common structural tool buyers use when there is disagreement on value or when business performance is uncertain. A buyer might offer $20M, with $15M at closing and $5M contingent on hitting specific revenue or EBITDA targets over 12 to 24 months post-close. Earn-outs sound reasonable in a term sheet and are genuinely difficult to collect in practice. Disputes over earn-out calculations are among the most litigated issues in M&A.
The best way to minimize earn-out exposure is to run a competitive process, which creates pressure for buyers to front-load more of the consideration. It also helps to negotiate earn-out metrics that are directly within your control and tied to objective, auditable measures rather than accounting judgments.
Escrow and Indemnification
A standard deal will include a 10%-15% escrow holdback for 12-18 months post-close, held to cover any rep and warranty claims. For businesses with identified risks, whether a customer concentration issue, a pending litigation matter, or unresolved IP questions, buyers may push for larger escrows or specific indemnification carve-outs.
Reps and Warranties Insurance has become common in deals above $20M in enterprise value. It shifts the risk of a breach from the seller to an insurer, which can meaningfully improve a seller's ability to receive the escrow at the end of the holdback period.
Rollover Equity
Private equity buyers frequently ask founders to roll over 10%-30% of their equity into the new entity. This aligns incentives and reduces the cash required at close. For founders who believe in the growth story and want to participate in the upside of the next ownership phase, this can be genuinely valuable. For founders who want a clean exit, it is negotiable.
How to Get Your Business Diligence-Ready: A Practical Checklist
The preparation timeline matters. Most advisors, including the team at FIH, recommend starting diligence preparation at least 12 months before you intend to go to market. That gives you time to fix structural issues that affect value, not just paper over them.
- Clean up your financials: Get to accrual-basis accounting, reconcile any discrepancies, and separate personal expenses from business expenses on your P&L.
- Document your customer contracts: Review assignment clauses, cure any change-of-control provisions, and build a complete contract database.
- Build your ARR bridge: If you are a SaaS business, produce a clean monthly ARR reconciliation for the trailing 24 months minimum.
- Reduce customer concentration: If any single customer exceeds 20% of revenue, actively work to grow other accounts before you run a process.
- Fix your IP stack: Audit content rights, freelancer agreements, software licenses, and trademark registrations.
- Distribute key-person responsibilities: Hire or promote someone who can credibly lead sales or operations without the founder present.
- Pursue SOC 2 if you are a B2B SaaS company: It removes a significant technical diligence friction point and signals operational maturity.
- Prepare your data room in advance: Organize three years of financials, contracts, and operational documents before your first buyer meeting.
Frequently Asked Questions
How long does due diligence take for a software company sale?
For a typical software or SaaS business in the $10M-$100M enterprise value range, formal due diligence runs 45 to 90 days from signed LOI to close. If the seller is well-prepared and the data room is complete from day one, 60 days is achievable. Disorganized data rooms and slow document production are the most common reasons timelines extend, and delays cost sellers leverage.
What kills deals in due diligence most often?
Revenue quality surprises are the most common deal-killer. When a buyer's quality of earnings reveals that adjusted EBITDA is materially lower than what the seller presented, the buyer either re-trades the price or walks. Customer concentration issues, unresolved IP ownership, and key-person risk are the next most common problems. None of these are unsolvable; they all require time to fix before going to market.
How does customer concentration affect valuation multiples?
A business with its largest customer representing more than 20% of revenue will typically see a discount of 0.5x-1.5x EBITDA relative to a comparable business with diversified revenue. The buyer is not just applying a discount; they are also likely to structure part of the consideration as an earn-out tied to that customer's retention post-close. Getting concentration below 15% for your top customer meaningfully improves both the multiple and the at-close cash.
Do I need audited financials to sell my company?
For deals under $15M in enterprise value, reviewed financials from a reputable CPA are usually sufficient. Above $15M-$20M, buyers expect audited financials, and some private equity buyers require them as a condition of issuing an LOI. If your books are not currently audited, starting the audit process 12-18 months before going to market is the right move. It costs $15,000-$50,000 depending on company size and buys credibility that pays back many times over.
What is a quality of earnings report and who pays for it?
A quality of earnings report is an independent financial analysis conducted by a third-party accounting firm, commissioned by the buyer, to validate the seller's EBITDA and revenue claims. Buyers pay for their own QofE, which typically costs $40,000-$120,000 depending on company complexity. Some sellers commission their own sell-side QofE before going to market to surface issues proactively and speed up buyer diligence. For deals above $20M, a sell-side QofE is worth the investment.
How does FIH run a sale process, and what does it cost?
FIH runs confidential, off-market sale processes for technology and software companies with $2M to $250M in revenue. The firm works on a success-based fee structure, meaning there is no retainer cost to engage. FIH has an active network of more than 15,000 strategic and financial buyers specifically focused on the technology sector, which creates competitive tension that improves pricing and deal terms for sellers.
The Bottom Line: Preparation Is the Best Negotiating Leverage You Have
Buyers set the agenda in due diligence. They ask the questions, they control the timeline, and they decide which issues are material enough to affect price. The only real counter to that structural advantage is arriving so well-prepared that there are no surprises. A founder who can hand a buyer a clean data room on day one, answer every revenue question with a reconciled schedule, and point to a team that does not depend on any single person is a founder who negotiates from strength.
If you are thinking about a sale in the next one to three years and want an honest, confidential conversation about where your business stands today and what would make it more attractive to buyers, the team at FIH is glad to have that conversation. There is no obligation, and the call usually surfaces things that are worth knowing regardless of your timeline.