We want to avoid a buyer chipping away at our purchase price during due diligence because of unresolved legal or compliance exposure. How do we run an operational risk audit on our exit runway to identify and resolve these liabilities before the letter of intent is signed?

Question

Tyler Smith · Accepted Answer

Due diligence is where deals go to die, or at least where valuations get heavily discounted. Buyers will hunt for any unresolved legal, compliance, or operational liability to justify a lower purchase price. You must find and fix these issues yourself before you ever open your books.

Start by conducting a thorough operational risk audit on your exit runway. Focus on three primary areas: employment practices, intellectual property, and regulatory compliance. Review your employment contracts, non-compete agreements, and contractor relationships to ensure you have clear ownership of all work product.

Next, utilize your leadership team to systematically identify potential risks. Bring these issues to your weekly leadership meeting and run them through the IDS process. Assign specific compliance clean-up tasks as Rocks on your quarterly plans. This ensures that resolving potential liabilities becomes an integrated part of your operational execution rather than an overwhelming distraction.

By proactively auditing your contracts, software licenses, and regulatory filings, you can present a clean bill of health to potential buyers. When a buyer realizes your documentation is flawless and your liabilities are fully resolved, they lose their leverage to chip away at your valuation during the final stages of the transaction.