A buyer wants to see the numbers – preparing for due diligence

The purpose of due diligence is simple: the buyer wants to check that the business really earns what it appears to earn, that the balance sheet holds up, and that there are no financial surprises waiting to surface after completion. The tidier things are before the process starts, the easier the value is to document.

What is financial due diligence?

Due diligence can cover legal, tax, commercial and technical matters. The financial review concentrates on the finances. The buyer will typically try to understand the underlying profitability, the cash flow, the working capital, the debt and the quality of the balance sheet. The aim is not only to check that the annual accounts are correct, but to understand what financial position the buyer is actually taking on.

The buyer looks at more than the annual result

A good result in one year does not mean the business will earn the same going forward. So buyers often look at normalised EBITDA – a measure of operations before interest, tax and depreciation, where the normalisation tries to strip out anything that does not represent the ordinary business. Where the company has had a large one-off cost, adjusting for it can be relevant. The same applies where the owner's salary is materially higher or lower than it would cost to employ an outside general manager. But normalisation cuts both ways. If the business has deferred necessary maintenance, had a temporary cost saving or booked income that is not expected to recur, the buyer can argue for adjusting the result down. EBITDA is also not the same as cash flow. To understand the valuation itself better, we have a separate guide to what a business may be worth.

The balance sheet can matter as much as the result

Old trade receivables, obsolete stock and unresolved balances with owners are classic areas a buyer will examine. The Accounting Act requires income as a general rule to be recognised when it is earned, the related costs to be matched against it, and unrealised losses to be taken into account. Current assets must as a general rule be measured at the lower of cost and fair value. If the accounts show a receivable of NOK 500,000 that in reality cannot be collected, the company does not have the value the balance sheet suggests. The same goes for stock that has sat so long it can no longer be sold at book value. Unclear owner transactions will also draw attention. A loan from a limited company to a personal shareholder is caught both by company law and, as a general rule, by the rules taxing it as a dividend.

From enterprise value to what the seller is actually paid

In many transactions the price discussion starts with the value of the operations themselves, often called enterprise value. If the parties agree that normalised EBITDA is NOK 2 million and use a multiple of 5, that gives an enterprise value of NOK 10 million. The seller will still not receive 10 million. From enterprise value you normally have to arrive at the value of the shares – equity value. That can involve adjusting for cash, interest-bearing debt, other agreed debt-like items and any deviation from an agreed normal level of working capital. What counts as net debt, working capital or a debt-like item has to be agreed in each transaction – the terms have no universal statutory definition. Nor does a due diligence finding automatically mean an equivalent price reduction. Risk can instead be handled through warranties, specific indemnities, a retention of part of the price, or an earn-out tied to future results.

What should be ready before the buyer starts asking

A tidy documentation pack speeds the process up and reduces the risk that uncertainty is used against you in the price negotiation. You should typically be able to produce annual accounts with notes for recent years and the directors' report where the company has to prepare one, updated interim accounts for the current year, the trial balance and a specified general ledger, aged customer and supplier ledgers, documentation of VAT, tax, a-meldinger, employer's contributions and advance deductions, salary, pension and bonus summaries, inventory lists with obsolescence assessments, bank deposits, loans, leasing and other financial obligations, budgets and forecasts with explained assumptions, and material customer, supplier and lease agreements. Small companies do not generally have to prepare a directors' report. From 1 January 2026 the separate tax withholding account has also been abolished – advance deductions are now paid directly to Skatteetaten by the first working day after the salary payment.

A share sale and an asset sale are two different things

In a share sale the buyer buys the shares in the company. The company remains the same legal person, with the same assets, agreements, tax positions and historical obligations. That is exactly why due diligence matters so much. Where a Norwegian holding company sells shares in a Norwegian AS, the gain will normally fall under the participation exemption and be tax-free in the holding company. If you sell the shares personally, different rules apply. In an asset sale it is the company that sells the business or selected assets. Gains are then as a general rule taxable income in the company, at an ordinary corporate rate of 22%, though the timing of recognition can depend on what is sold. Goods and services transferred as part of a transfer of a business can fall within the exemption in section 6-14 of the VAT Act. Where the transfer also counts as a transfer of an undertaking under the Working Environment Act, employees' contracts can follow to the new employer. On a share sale, check the articles of association and the shareholders' agreement early. The Companies Act's starting point is that both company consent and pre-emption rights apply unless the articles say otherwise.

Do not put the whole company openly in a data room

A serious buyer needs a lot of information, but that does not mean everyone should have access to everything from day one. It is usually sensible to sign a confidentiality agreement before detailed information is shared, to use an access-controlled data room, and to open more sensitive information gradually as the process becomes more concrete. Personal data needs particular attention. The GDPR requires a valid legal basis, and the business should share only the information that is genuinely necessary. National identity numbers, individual health information or anything else the buyer does not need at that stage should not sit openly in the data room simply because the document exists.

The best time to tidy up is before the sale process starts

Due diligence is far easier where the reconciliations are already done, balances with owners are documented, old receivables have been assessed, the stock has been reviewed and one-off items can be explained. That way you avoid reconstructing the history while a buyer is asking questions – and the buyer has fewer reasons to build an uncertainty discount into the offer.

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

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