Diligence does not evaluate your business as it is today. It evaluates the record of how you have run it. That record is already being written, and the items below are the ones that reliably cost money at the table: a price reduction, an escrow holdback, or weeks of delay while lawyers paper over something that should not have been an issue.
The Six Findings
- A cap table that does not reconcile. Missing share certificates, unsigned option grants, a promise in an email that nobody documented, option grants never board-approved. Fix: have counsel reconcile the minute book and cap table annually.
- Contractors who look like employees. Long-term, full-time, directed work paid on invoice. The exposure is retroactive payroll, source deductions and penalties, and buyers price it in. Fix: assess classification properly and correct going forward.
- Intellectual property not assigned. Code written by a contractor or a pre-incorporation founder with no written assignment. The company may not own its core asset. Fix: get assignment agreements signed by everyone who ever built anything, now, while relationships are good.
- Revenue recognition that will not survive review. Annual contracts recognized on invoice, one-time work in the recurring line. This changes headline metrics and therefore valuation. Fix: adopt a defensible policy and restate before anyone else asks.
- Unfiled or inconsistent tax positions. Late remittances, an unregistered sales tax obligation in another jurisdiction, aggressive positions with no supporting file. Fix: clean up voluntarily, the programs available to volunteers are better than the ones applied to the caught.
- Customer concentration with no contracts. Sixty percent of revenue from two clients on handshake terms and no change-of-control language. Fix: paper the relationships, and start diversifying with a stated target.
A data room is a habit, not a project
Keep a folder structure with the corporate record, material contracts, the cap table, financial statements and tax filings, and update it as documents are created. The company that can answer diligence in a week negotiates from a different position than the one that needs six.
What to Do
- Run a mock diligence against the six items above, honestly, this quarter.
- Rank the findings by cost to fix now versus cost at the table.
- Open the data room folder and maintain it from today forward.
General information for Canadian founders, current to 2026. It is not tax advice and does not account for your specific facts. Rates, thresholds and rules change, confirm the current figures before acting.