In this guide
- What due diligence is and when it happens
- What buyers are really testing
- The due diligence checklist by area
- How to prepare a data room before buyers ask
- Financial due diligence: the part that moves the price
- Legal, licences and the share sale or asset sale question
- What happens when the buyer finds a problem
- A preparation timeline for sellers
- Due diligence usually starts after heads of terms are signed and typically runs two to three months alongside the sale contract.
- Buyers test whether your normalised profit is real, whether there are hidden liabilities, and whether the business will keep running without you.
- Most findings lead to a price change, a retention or a specific indemnity rather than a walk-away, but surprises cost more than problems you disclosed.
- Build a data room from the checklist below before you go to market, not after a buyer asks.
- Disclose known issues early and in writing, because a proper disclosure letter protects you under the warranties.
What due diligence is and when it happens
A typical SME sale takes about 6 to 12 months from preparation to completion. Preparation often takes 1 to 3 months, marketing and buyer meetings 2 to 4 months, offers and heads of terms 1 to 2 months, and due diligence and contracts a further 2 to 3 months. Due diligence starts once you and one buyer sign heads of terms, usually with a period of exclusivity during which you agree not to talk to other buyers. The full sequence is set out in our guide on how to sell a business in Singapore.
The scope depends on the buyer. An individual buyer may rely on their own accountant and a lawyer. A listed or private strategic group, a regional acquirer or a private equity-backed platform will usually appoint accountants and lawyers, and sometimes tax, IT or property specialists. Larger buyers send longer request lists, but the questions underneath are the same.
Due diligence has four purposes for the buyer: to confirm the price, to find liabilities, to plan how they will run the business after completion, and to decide which protections to ask for in the sale and purchase agreement.
What buyers are really testing
- Is the profit real? Buyers rebuild your normalised EBITDA from the ledgers. Normalisation, meaning a market salary for the owner, market rent and the removal of one-off items, cut reported profit by 20% to 45% in Singapore filings. Every add-back you claim will be tested against evidence.
- Is the cash real? Buyers check that revenue turns into cash, that debtors are collectable and that the business needs a normal level of working capital. This feeds directly into how much of the headline price you receive, as our guide on working capital and net debt explains.
- Are there hidden liabilities? Unpaid tax, CPF shortfalls, staff claims, disputes, guarantees and reinstatement costs on leased premises.
- Will the business work without you? Customer concentration, key staff, relationships held personally by the owner and licences in your own name.
- Can it be transferred? Leases, contracts and licences that need a third party's consent, or cannot be transferred at all.
The due diligence checklist by area
Use this table to build your data room. The middle column is what buyers typically ask for. The right-hand column lists the issues worth fixing before you go to market, because they are the ones that most often lead to price chips or delays.
| Area | What buyers typically ask for | Common issues to fix first |
|---|---|---|
| Financial | Three to five years of financial statements; monthly management accounts for the current and last full year; general ledger and trial balances; bank statements; aged debtors and creditors; revenue by customer, service line and month; owner pay and personal expenses; budget or forecast. | Management accounts that do not reconcile to the annual accounts; add-backs with no evidence; personal costs mixed into the business; government grants and temporary tax rebates treated as recurring profit. |
| Tax | Corporate tax computations and notices of assessment; GST registration and returns, if registered; correspondence with IRAS; related-party charges and the basis for them; records of grants and incentives received. | Late or missing filings; GST treatment of particular income never checked; related-party charges with no written agreement. |
| Legal and corporate | ACRA business profile; constitution; registers of members and directors; share certificates; board and shareholder resolutions; shareholder agreements; loans, security and guarantees; trademarks; past, current and threatened disputes. | Registers and resolutions not kept up to date; undocumented shareholder loans; personal guarantees the buyer will not take over; trademarks registered to the owner personally. |
| Commercial | Top customers and their share of revenue; customer and supplier contracts; pricing and discount history; recurring revenue and retention; pipeline; marketing channels; competitive position. | Key customers on handshake terms; change of control clauses in major contracts; heavy dependence on one customer with no contract. |
| Employees | Organisation chart; staff list with roles, start dates, pay and benefits (anonymised until later); contracts and handbook; CPF contribution records; work pass holders; bonus, commission and leave liabilities; disputes and claims. | Missing written contracts; CPF not paid on some pay items; key staff with short notice periods; the owner doing work no one else knows how to do. |
| Property and lease | Leases and renewals; landlord consent needed for assignment or change of control; title documents for any owned property; fit-out and reinstatement obligations; approvals for the current use of the premises. | Short remaining lease term; reinstatement costs not provided for; use of the premises not matching the approved use. |
| Licences and regulatory | Every licence, registration and permit, with expiry dates and the name each is held in; inspection reports; correspondence with regulators; past breaches and how they were resolved. | Licences held in the owner's personal name; licences that cannot be transferred and need a share sale or a fresh application. |
| IT and data | Systems and software with licence terms; domain names, websites and social media accounts and who owns them; data protection policies under the PDPA; your data protection officer; any data breaches; backups and cyber security. | Domains or accounts registered to a staff member or an agency; unlicensed software; no data protection officer appointed; customer data held on personal devices. |
How to prepare a data room before buyers ask
A data room is a shared, access-controlled folder where buyers review your documents. Most sales now use an online data room with permissions and activity logs.
- Mirror the checklist. One folder per area in the table above, with numbered sub-folders, so buyers and their advisers can find documents without asking.
- Write an index. List every document with a short description. Note gaps honestly, for example a contract that was never put in writing.
- Make one person responsible. Usually your finance lead or adviser. Buyers should send questions through a single channel, and every answer should be logged.
- Reconcile before you upload. Check that management accounts agree to the annual accounts, that the staff list agrees to payroll and CPF records, and that the customer list agrees to revenue.
- Stage access. Upload the full room early but release the most sensitive folders, such as named customers and individual pay, only to the buyer you have signed heads of terms with. Our guide on confidentiality and NDAs covers this in more detail.
A well-organised data room shortens due diligence and signals that the business is well run. A disorganised one invites more questions and gives the buyer more reasons to revisit the price.
Financial due diligence: the part that moves the price
Financial due diligence, sometimes called a quality of earnings review, is where most price changes come from. Buyers focus on a few questions.
- Normalised EBITDA. Each add-back needs support: payslips showing the owner's pay, a market rent comparison, invoices for one-off costs. An add-back you cannot evidence will usually be removed, and at 2x to 5x normalised EBITDA every dollar removed costs you several dollars of price.
- Sustainable profit. Temporary corporate income tax rebates, government grants and one-off contracts should not be presented as permanent earnings. Corporate tax is 17% with partial exemptions, and buyers will look at profit on that basis.
- Revenue recognition. If customers pay in advance, buyers will ask how much of that cash relates to services not yet delivered. Customer prepayments and deferred revenue are often treated as debt-like items that reduce what you receive.
- Working capital. Buyers will set a normal level of working capital, often called the peg, based on recent months. Pulling cash out of debtors or delaying payments to suppliers before completion tends to be noticed and reversed.
Before you go to market, test your own numbers. Our business valuation calculator gives an indicative range on normalised EBITDA, and the Singapore SME valuation multiples page shows typical ranges by sector.
Legal, licences and the share sale or asset sale question
The depth of legal due diligence depends on the deal structure. In a share sale, tax losses, liabilities, contracts and licences stay with the company, so the buyer inherits its history and checks it thoroughly, then relies on warranties and indemnities for anything missed. In an asset sale, the buyer can leave liabilities behind, but each contract, lease and licence must be transferred or re-applied for, and employees' contracts need to be moved across under the rules in the Employment Act. Your lawyer will advise on how that applies to your staff.
Licences often decide the structure. Several generally cannot simply be transferred, which usually pushes a deal towards a share sale. Examples include MOM employment agency licences, MAS approval for changes of control of licensed financial advisers, NEA and PLRD licences for cleaning and security, BCA registration grades in construction, SFA licences for food businesses and HCSA licences in healthcare. Check with your lawyer which apply to you, whether the regulator must approve a change of ownership, and how long that takes, so it does not hold up completion.
What happens when the buyer finds a problem
Very few businesses come through due diligence with nothing found. What matters is how a finding is handled. The usual outcomes, from mildest to most serious, are:
- A disclosure. You disclose the issue against the warranties in a disclosure letter, and the buyer accepts it.
- A specific indemnity. You agree to cover a defined risk, such as a possible tax or CPF adjustment, if it ever arises.
- A retention. Part of the price is held back for an agreed period. In SME deals typically 50% to 85% of the price is paid at completion, with the rest deferred, on earn-out or retained against warranties.
- A condition. The issue must be fixed before completion, for example obtaining a landlord's consent.
- A price reduction. Usually when the finding changes normalised profit or reveals a cost the buyer will have to carry.
- A walk-away. Usually when trust is lost, not because of the issue itself.
Buyers forgive problems you disclosed far more readily than problems they found. Tell them early, in writing, with the facts and what you have done about it.
A preparation timeline for sellers
- One to two years before: keep monthly management accounts that reconcile to the annual accounts, separate personal costs from the business, put key customer and staff arrangements in writing, check CPF and GST compliance, and move licences, domains and trademarks into the company's name where possible.
- Three to six months before: build the data room from the checklist above, gather evidence for each add-back and read your lease and major contracts for consent requirements.
- During due diligence: answer questions through one channel, agree a response time, keep a log, and keep running the business. A dip in trading during due diligence is one of the most common reasons for a late price change.
Clearmere prepares the evidence for add-backs and the data room index before any buyer is approached, so that due diligence confirms the numbers rather than discovers them.
Questions owners ask
How long does due diligence take when selling a business in Singapore?
For an owner-operated SME, due diligence and the sale contract typically take two to three months together, starting after heads of terms are signed. It can be quicker for a small business bought by an individual, and longer when the buyer is a larger group with several advisers, when licences need regulatory approval, or when the data room is incomplete. Preparing your documents before you go to market is the most effective way to keep it short.
What documents do I need for due diligence?
Expect to provide three to five years of financial statements, monthly management accounts, tax filings and IRAS correspondence, company records from ACRA, shareholder and loan documents, customer and supplier contracts, a staff list with employment contracts and CPF records, your lease, all licences and permits, and details of your IT systems and data protection arrangements. The checklist table in this guide lists each area in detail.
Can a buyer reduce the price after due diligence?
Yes. Heads of terms are usually not binding on price, so a buyer can propose a lower figure if due diligence shows lower normalised profit, hidden liabilities or a weaker position than presented. Often the change takes the form of a retention or a specific indemnity rather than a straight price cut. The best protection is to test your own numbers and disclose known issues before the buyer finds them.
Should I commission vendor due diligence before selling?
For larger or more complex businesses, a review by your own accountant before going to market can be worth it. It finds issues while you still have time to fix them, gives buyers more confidence in the numbers and can shorten their own review. For a smaller business, a careful internal review against the checklist in this guide, with evidence for every add-back, often achieves most of the same benefit at lower cost.