The diligence flag triage

Every business has issues. Sort them by what they cost and whether they can be fixed.

The idea

Every business has issues. Sort them by what they cost and whether they can be fixed.

The diligence flags section of every deal workbook does one thing: it lists what a buyer will find, marks each flag yellow or red, and tells the founder what to do about it.

Some issues should be fixed before launch. Some should be disclosed with context. Some can be safely ignored. Knowing which is which is most of the value.

Timing

The time to start the conversation is now

How far out you feel is not the signal. Buyers read the trailing numbers, so time before a sale is room to move them, not a waiting room. A founder with a number in mind may reach it in one sale or in two: a majority stake now, with equity rolled into the buyer’s company for a second sale later. The sale itself, once you sign, runs in four phases.

Read the exit timing window

The sale, signing to the wire

0–0 months

Prepare

Market

Select

Close

Four phases, for a company that is ready. The conversation can start any time before.

An estimate from past engagements, not a commitment.

The figure

Impact against fixability

HighImpact on price or certaintyLow

Frame it

Customer concentration, a down year, a pending claim. It cannot be fixed in time.

What to do Disclose early, with context and a plan to mitigate it. Never let a buyer discover it.

Fix it now

Target

Cash-basis books, a license in the owner’s name, undocumented add-backs, missing contracts.

What to do Fix before launch. The highest return on effort in the whole process.

Note and move on

Minor legacy issues.

What to do List them in the data room; do not spend time on them.

Tidy

Small housekeeping items.

What to do Fix them early, as a batch.

HardFixability before marketEasy

In the workbook, each flag is yellow or red and carries three parts: the finding, the observation, and the read-through.

How to read it

Issues a buyer would find are sorted by how much they would affect price or deal certainty (vertical) and how easily they can be fixed before going to market (horizontal). High-impact, easy-to-fix items are fixed first; high-impact, hard-to-fix items are disclosed on the seller’s terms.