What is the due diligence period when buying a business?

In a business purchase, the due diligence period is the window written into the letter of intent (LOI) or purchase agreement in which the buyer checks the business and the diligence condition remains open. BDC says an LOI’s provisions generally include a timeline for the due diligence. The words you sign decide the start, the end and the consequences, so read them closely.

When it starts

Look for what triggers the clock. A document may count from a signing date, an acceptance date or the date the seller delivers certain records. BDC lists the duration of exclusivity among the clauses an LOI may include: the period in which the seller agrees not to solicit or consider other offers without first speaking with the buyer. Check whether exclusivity and the diligence period start and end together.

How it ends

The agreement should say how the condition ends. It may allow the buyer to remove or waive it by written notice, it may lapse on a stated date, or it may let the buyer end the deal if the condition is not satisfied. Ask who must give notice, in what form, by what time, and what happens if nobody says anything. BDC says an LOI is not intended to be fully binding unless otherwise expressly stipulated, so confirm which parts of yours bind.

What happens to the deposit

None of the sources below says what happens to a deposit when a condition is not satisfied or is waived. That depends on the agreement. Check whether the deposit is refundable while the condition is open, whether waiving the condition changes that, and who holds the money. The page on whether a deposit can become non-refundable only after the conditions are removed goes through that wording.

Other conditions run on their own terms

BDC describes closing conditions as undertakings the vendor agrees to complete between signing the purchase agreement and closing. Check whether those have their own dates and are listed apart from the buyer’s diligence condition. For how long the review runs, see how long due diligence takes.