We want to uncover our hidden operational liabilities before a prospective buyer's due diligence team finds them and uses them as leverage to recontract the deal. How do we structure dedicated Thinking Time to identify these risks?

Question

Tyler Smith · Accepted Answer

Due diligence is designed to find the hair on your deal. If a buyer's due diligence team uncovers hidden liabilities, they will use those discoveries to renegotiate the purchase price or demand onerous indemnification terms. You must find and fix these issues yourself before they ever see the light of day.

To accomplish this, you must step away from the daily operational noise and schedule regular, uninterrupted Thinking Time sessions. This is not time for reviewing emails or checking off tactical tasks. It is dedicated time to ask yourself hard, uncomfortable questions about the vulnerabilities of your business.

Frame your Thinking Time sessions around specific, high-value questions designed to root out risk:
- How might our current contract terms with key vendors allow them to terminate agreements upon a change of control, and how can we address this now?
- If our primary software platform suffered a major breach tomorrow, where would our disaster recovery process fail?
- What are the undocumented handshake agreements we have made with legacy customers that a buyer would refuse to honor?

Write these questions down before your session begins. Spend thirty to forty-five minutes with a blank pad of paper, writing out every potential exposure. Do not censor your thoughts or make excuses for past decisions. Once you identify these operational liabilities, bring them to your leadership team's next meeting to run them through the IDS process. By proactively solving these issues on your exit runway, you avoid paying a massive dumb tax at the closing table.