How do I handle a buyer's due diligence requests as the seller?

Building the data room

Buyers now expect an organized set of documents rather than a slow email exchange: financial statements, tax returns and notices of assessment, HST and payroll remittance records, the minute book, contracts, the lease, employee records and licences. Assembling this before a buyer asks speeds the process and signals that the business is well run. Control access: a data room with a log of who viewed what protects you if a deal falls through and you need to know how far information travelled.

What to disclose, and why it protects you

The purchase agreement will ask you to make representations and warranties: that the financial statements are accurate, taxes are paid, there is no undisclosed litigation and so on. Disclosure schedules let you qualify those statements with the truth: a pending dispute, an old PPSA registration you have not gotten around to discharging, an employee dispute. A fact properly disclosed in a schedule generally cannot support an indemnity claim for a breach of the warranty it relates to.

The instinct to stay quiet about a problem and hope it is not found usually backfires; buyers price uncertainty more harshly than a known, quantified issue.

Protecting yourself while information flows out

Route every request through one person, usually your accountant or lawyer, so your team is not fielding scattered emails and giving inconsistent answers. Keep a running log of what was asked and what was provided; it is useful if a warranty dispute arises later about what a buyer actually knew before closing. Limit access to sensitive material, such as full customer lists or employee compensation, to later in the process once exclusivity and confidentiality are firmly in place.

Old liabilities and the Bulk Sales Act

Buyers will ask about registered security, tax arrears and old claims because these can affect their view of the price even where they do not follow the assets. A Personal Property Security Act discharge for anything paid off, and a clear answer on outstanding HST, payroll and corporate tax, head off most of these questions early. Note that the Bulk Sales Act, which once required creditor statements on a sale of business assets, was repealed in Ontario on 22 March 2017; it is not part of current diligence practice, whatever an older template might suggest.