We have standard general liability insurance, but we have never prioritized sophisticated coverage like cyber liability or key-person insurance. How do we audit and upgrade our risk management policies on our exit runway to prevent major hurdles during a buyer's due diligence?

Question

Tyler Smith · Accepted Answer

Buyers do not just look at your upside; they look closely at your downside risks. During due diligence, a buyer's risk management team will carefully evaluate your insurance coverage. If they find gaps, they may demand purchase price escrows or holdbacks to protect themselves against potential historical liabilities.

To avoid this, you must conduct a comprehensive insurance and risk audit at least eighteen months before going to market. Work with a specialized commercial insurance broker to review your policies. Ensure your general liability, directors and officers insurance, and cyber liability limits are aligned with enterprise standards for a company of your size.

If you run a technology or professional services company, having robust cyber liability insurance is non-negotiable. Buyers want to know that a historical data breach will not bankrupt the business post-sale.

Additionally, put key-person insurance in place for your critical leadership team members. This shows buyers that you have thought about operational continuity and have protected the business against sudden talent losses. Upgrading these coverages early shows operational maturity and gives the buyer one less reason to discount your purchase price or demand aggressive indemnity terms.