Seventy-nine percent of busted deals die on something discovered in due diligence, which means the highest-leverage questions are the ones asked before the LOI, while walking away is still free. This guide organizes the pre-LOI conversation into the four areas where deals actually die, with the questions that surface problems early. Ask them across two or three conversations, conversationally; this is a dialogue with someone deciding whether to trust you with their life's work, not a deposition.
What portion of revenue is contracted or recurring, versus repeat-but-uncommitted, versus one-time? Who are the top ten customers, and roughly what share is the largest? (Anything over 15-20% needs its own conversation.) Which customer relationships are personally yours, and how do you think they transfer? When did you last raise prices, and what happened? Walk me through how a new customer typically finds you. Have you lost any significant customers in the last two years, and why?
Are the statements compiled, reviewed, or audited, and who prepares them? Cash or accrual, and where do the two diverge most? What runs through the business that a new owner wouldn't have? (This invites the add-back conversation honestly; the schedule comes later, the candor signal comes now.) How does working capital move across the year, and when is cash tightest? Any customer deposits, deferred revenue, or work billed ahead of completion?
Why sell, and why now? Then, gently, a second time in a later conversation; consistent answers are the tell. What have you tried before, if anything: prior listings, other buyers, family succession? What does the business need in the next three years that you did not want to fund or do? (The most honest question in the set; sellers answer it more truthfully than "what are the risks.") What is your ideal involvement after closing, honestly? What would make you proud about how this ends, and what would you regret?
Who, besides you, could run this for a month if you disappeared? Which employees would a new owner most need to keep, and do they know a sale is possible? What breaks first when things get busy? What does the equipment or systems need in the next two years? Which suppliers or licenses could not be replaced in a month?
Did the answers get more specific or more vague as questions got harder? Would this person's employees describe the business the same way? And the concentration test: does this business survive the departure of the seller, the top customer, and the best employee, in the same year? If the honest answer is no to all three, price it or pass.
None of this replaces diligence; it decides whether diligence is worth paying for. Buyers who front-load these conversations sign fewer LOIs and close a higher share of them, which is exactly the funnel shape the data rewards.
Download the printable question set below. Pressure-testing the answers is what the Accelerator's Phase 02-03 experts do for a living.
A Phase 02-03 guide from Five Experts. Related: the Acquisition Criteria Template (know your dealbreakers before you ask), the LOI Checklist (what to write once the answers hold up), and the Post-LOI Due Diligence Checklist (verifying everything they said).
