Handling Due Diligence as a Seller: What to Expect, How to Prepare, and Maintaining Confidentiality

• Financial Records: Buyers will scrutinize your financials, including profit and loss statements, balance sheets, tax returns, and cash flow reports for the past 3-5 years. They’ll look for consistency, profitability, and any red flags like declining revenue or unpaid taxes.
• Client Contracts and Relationships: Staffing agencies thrive on client relationships, so buyers will review your contracts, client retention rates, and revenue concentration. They’ll want to know if your top clients (e.g., those contributing 20% or more of revenue) are locked into long-term agreements or at risk of leaving post-sale.
• Employee and Contractor Data: Buyers will examine your workforce, including employee contracts, payroll records, and benefits. They’ll also look at your pool of temporary or contract workers, assessing turnover rates and compliance with labor laws (e.g., proper classification of 1099 contractors vs. W-2 employees).
• Legal and Compliance: Expect a deep dive into any legal issues, such as pending lawsuits, worker misclassification claims, or regulatory violations. Buyers will also verify compliance with industry standards, like background checks for healthcare staffing placements.
• Operational Systems: Buyers will assess your technology and processes, especially if you’re a tech-focused staffing agency. They’ll review your applicant tracking system (ATS), CRM software, and any proprietary tools to ensure they’re efficient and transferable.
• Liabilities and Risks: Buyers will look for hidden liabilities, such as outstanding debts, leases, or potential disputes with clients or employees. They’ll also evaluate risks like market dependency (e.g., reliance on a single industry) or economic downturn impacts.

• Organize Your Financials: Gather all financial documents in a secure, digital format (e.g., a virtual data room). Ensure your books are up-to-date and audited if possible—clean financials can reduce buyer skepticism. For example, if your staffing agency has seen a 10% revenue increase year-over-year, highlight this trend with clear documentation.
• Review Client Contracts: Compile all client agreements, noting key terms like duration, renewal clauses, and payment schedules. If any contracts are nearing expiration, consider renewing them before due diligence to demonstrate stability. Be ready to explain any client concentration risks and how you’ve diversified your client base.
• Document Your Workforce: Create a detailed overview of your employees and contractors, including roles, tenure, and compensation. Highlight retention strategies, such as bonuses for top recruiters, to show the buyer your team is stable. Ensure compliance with labor laws—address any issues like misclassified workers before the buyer flags them.
• Address Legal and Compliance Issues: Work with a lawyer to resolve any outstanding legal matters, such as settling disputes or clearing unpaid taxes. Document your compliance with industry regulations, especially in high-risk sectors like healthcare staffing, where background checks and certifications are critical.
• Prepare Operational Details: Provide a clear picture of your operations, including workflows, technology stack, and vendor agreements. If you use a proprietary ATS, be ready to demonstrate its value and ensure it’s transferable to the buyer. Document any operational efficiencies, like a streamlined candidate onboarding process, to showcase your agency’s strengths.
• Anticipate Buyer Questions: Put yourself in the buyer’s shoes—what might they be concerned about? For example, if your agency relies heavily on temporary IT placements, be prepared to discuss how you’d handle a tech market slowdown. Having answers ready can prevent delays and build trust.
• Work with a Broker: A broker can help you prepare by identifying potential red flags and organizing your documents. We recently helped a seller streamline their due diligence by creating a virtual data room, reducing the process from 60 days to 45 days and keeping the deal on track.

• Use a Non-Disclosure Agreement (NDA): Before sharing any data, ensure the buyer signs a comprehensive NDA. This legally binds them to keep your information confidential and not use it for any purpose other than evaluating the sale.
• Redact Sensitive Information: Early in the process, redact highly sensitive details, such as specific client or employee names, until the buyer is further along in due diligence. For example, refer to clients as “Client A” or “Healthcare Client 1” in initial documents.
• Limit Internal Communication: Avoid sharing details of the sale with your team until the deal is near closing. If key employees need to be involved (e.g., to provide operational insights), inform them on a need-to-know basis and have them sign confidentiality agreements.
• Work Through a Broker: A broker like SAB can act as an intermediary, managing communication with the buyer and ensuring sensitive information is shared appropriately. We handle the due diligence process for our clients, protecting their confidentiality while keeping the deal moving forward.