How Truthful Should You Be with a Buyer During Diligence?
Selling a business is one of the most personal transactions a person can go through. Unlike trading stocks or real estate, it’s not just a matter of selling an asset. It's a life’s work, full of decisions, mistakes, victories, relationships, and stories. So when you sit across the table from a prospective buyer and begin the diligence process, a natural question arises:
How truthful should you be—especially when the full truth might impact the final sale price?
This is not a theoretical question. It’s a daily, practical one faced by business owners in the process of selling. Maybe the business has a high customer concentration. Maybe a key employee is nearing retirement. Maybe sales were inflated last year due to an unusual contract. Do you volunteer that information early? Wait to be asked? Or let it lie quietly in the corner, hoping it won’t come up?
The short answer is this: The truth always comes out eventually. The real question is when and how it comes out—and what that says about you, the deal, and the legacy you’re leaving behind.
The Business Case for Transparency
Let’s start with the practical side: why being honest—sometimes painfully so—often turns out to be the smarter business move.
1. Avoiding the “Dreaded Retrade”
In M&A speak, a "retrade" happens when a buyer agrees to a price, begins due diligence, discovers something negative, and then lowers their offer. It’s demoralizing, often viewed as aggressive, and can damage trust on both sides.
But here’s what’s worse: if the retrade happens because of something that was withheld.
A buyer finding out about a material risk late in diligence is like learning on inspection day that the foundation of a house is cracked. Whether the seller “forgot” to mention it or didn’t think it was a big deal, the buyer loses trust. Once trust goes, the deal is in danger—no matter how good the numbers are.
2. Filtering Out the Wrong Buyer
Ironically, being upfront about challenges can actually help your sale process by scaring off the wrong buyers early. If your business has customer concentration or regulatory risk or is dependent on your personal relationships, it’s far better to disclose that sooner than later. The buyer who walks away wasn’t the right one anyway. And the buyer who stays? They’re now doing it with eyes open.
You don’t want to close a deal only to have the buyer panic six months in and start making panicked changes that hurt the business and the people inside it.
3. Buyers Aren’t Naive
Most experienced buyers assume that every business has warts. They’re expecting imperfections, risks, and skeletons in the closet. If you come to them with transparency, their respect for you often increases. That can go a long way in preserving deal momentum, securing better terms, and building a post-sale relationship if you’re rolling equity or staying on as a consultant.
The Emotional Case for Transparency
Now let’s talk about something even more important: how you’ll feel once this is over.
You’ve probably spent years—maybe decades—building trust with employees, customers, vendors, and your community. You likely have pride not just in the profits you generated, but in the way you built the business.
If you were to mislead a buyer—or even “bend the truth”—you might get a few extra dollars on the front end. But you’ll live with that decision longer than the money will last.
Think about what it would feel like for the buyer to call you months later, disappointed or even furious about something that was hidden. Or worse, imagine them calling your employees, questioning whether the business is what it was promised to be. That legacy you worked so hard to build? It starts to erode.
There’s honor in transparency. And after the check clears and the dust settles, honor is often worth more than cash.
Gray Areas: Where It Gets Complicated
All that said, not every detail in your business is material. Not every truth deserves equal weight in a negotiation. So how do you determine what to share?
Here are a few categories and how to think about them:
1. Material Risks
If something would change a reasonable buyer’s decision to purchase the business or affect how they value it, it’s material. That includes:
A key employee planning to leave
Losing a major customer
Legal or regulatory risks
Temporary revenue spikes from one-off events
These things must be disclosed. If you hide them and the buyer finds out later, it could lead to legal consequences—beyond just reputational damage.
2. Minor Operational Inefficiencies
These can be more subjective. Perhaps you haven’t updated your IT system in years. Maybe your warehouse isn’t as organized as it could be. These aren’t dealbreakers, but they’re still worth mentioning—especially if the buyer will inherit those processes.
Being candid about areas for improvement shows humility and awareness, not weakness.
3. Opinions and Predictions
Statements like “I think the business can grow 20% a year” or “We could double revenue with the right buyer” are not facts. They’re opinions. Be careful about making grand projections unless you have data to back them up.
Buyers are used to optimistic sellers. They’ll respect you more if you’re conservative and grounded.
4. Personal Plans
If you’re planning to move out of town, retire fully, or start another venture right away, make that clear—especially if the buyer is expecting you to stick around post-close.
How to Structure Honest Conversations
Being honest doesn’t mean you need to dump every risk on the table in one sitting. Thoughtful transparency is about sequencing and context. Here’s how to approach it:
Flag Concerns Early, Frame Them Thoughtfully
“One thing we’ve always worked around is customer concentration. Our top 3 customers make up 60% of our revenue, but we’ve had strong relationships with them for years.”
Share the Story Behind the Numbers
“We had a huge spike in 2022 because of a unique one-time contract. It helped fund our new equipment, but we’re back to a more normalized revenue baseline now.”
Provide Solutions or Mitigations
“We’ve got a few employees nearing retirement. We’ve already begun cross-training and building SOPs to preserve institutional knowledge.”
Document and Clarify
Don’t rely on verbal assurances. Use the data room. Provide supporting documents. This protects both you and the buyer.
The Tradeoff: Truth vs. Valuation?
There’s no denying that full transparency may cause a buyer to offer less. But here’s what many sellers find:
The buyers who walk away when faced with honesty are not the ones you want to close with.
You’re not just selling a business. You’re choosing a successor. And the best successors respect integrity. Some might even increase their offer after hearing your candidness, because they trust you more.
What you might lose in valuation, you often gain in smoother negotiations, less time wasted, fewer legal entanglements, and a stronger relationship with the buyer.
Plus, deals rarely fall apart over one issue. They fall apart when the buyer loses trust.
Final Thought: Sell the Business the Way You Built It
Most owners don’t build great businesses through deception. They do it with grit, care, persistence, and a sense of fairness. If that’s how you’ve run your company, that’s how you should sell it.
Be transparent. Be honest. Not recklessly so—but thoughtfully, strategically, and with dignity. The buyer deserves it. Your employees deserve it. And most of all, you deserve to close the deal with your head held high.
After all, when the numbers fade and the paperwork is filed away, what lasts is the way you handled the moment of transition—the integrity you upheld when it mattered most.
