What the buyer's due diligence uncovers: unpaid taxes, off-the-books payroll, and how to prepare

When the buyer brings in a Big 4–style firm — or an equivalent accounting and legal team — for due diligence, what you did not disclose comes out: unpaid taxes, off-the-books payroll, undocumented supplier or customer agreements. That often leads the buyer to walk or renegotiate the price down. The only defense is to disclose and document it yourself first. This note explains what the buyer's due diligence typically uncovers and how to prepare before opening the data room.

What does due diligence typically uncover that the seller did not disclose?

Three types of findings appear frequently in Mexican SME and lead to price adjustments or deal break:

• Unpaid taxes or tax contingencies. Differences between tax and financial accounting, questionable tax credits, outsourcing not regularized with the tax authority, unrevealed deferred taxes. The buyer does not want to inherit tax liabilities; if they find them in diligence and they were not disclosed in the CIM, they use the finding to cut the price or impose closing conditions.

• Off-the-books payroll or informal labor. Employees without contracts, payments outside payroll, benefits not recorded, unquantified social security or tax contingencies. Labor reform 2021 and scrutiny on outsourcing mean the buyer reviews this closely. What the seller does not document or disclose becomes an argument for a discount or a regularization condition before closing.

• Supplier or customer agreements without documentation. Verbal contracts, key terms only in emails, unreviewed automatic renewals, change-of-control clauses the seller had not checked. The buyer needs to know what obligations they inherit; an important agreement with no document creates distrust and can delay or kill the deal.

It is not that the seller is "hiding" things: often the seller has simply not put their own information in order. The problem is that when the buyer and their firm enter the data room, they reconstruct everything from scratch. What is not documented or was not disclosed proactively is treated as a surprise — and surprise kills deals.

How to prepare before the buyer comes in?

The defense is not to hide: it is to disclose and document first. Four concrete steps:

• Build the normalized EBITDA bridge with support. Every adjustment to EBITDA must have backup. If the buyer reconstructs the number and finds discrepancies, the price moves. Use the normalized EBITDA calculator and document every line. More in normalized EBITDA.

• Organize the data room by area before the LOI. Financial, tax, labor, contracts, legal. Each section complete; no gaps that invite last-minute questions. The guide on how to prepare a data room in Mexico details what to include and how to structure it.

• Disclose known risks proactively in the CIM. What the seller discloses in the CIM and documents in the data room carries far less negative weight than what the buyer discovers on their own. Litigation, tax contingencies, differences between tax and financial accounting, unsigned contracts — if they are known, they go in the CIM with a clear line and support in the data room.

• Consider preparation or verification before opening the data room. If your company has tax or labor complexity, a prior review — with an accountant or advisor — to identify and document what the buyer will ask for reduces the risk of surprises. It does not replace the buyer's due diligence; it anticipates it. In services transaction-based advisory is described, including preparation before opening the data room.

What do sellers ask about what due diligence uncovers?

What if I already opened the data room and the buyer finds something I didn't disclose?

It depends on materiality. A minor finding may be resolved with a specific representation and warranty or a price adjustment. A material finding — unpaid taxes, off-the-books payroll not regularized, quantifiable tax contingency — usually leads to heavy renegotiation, an additional closing condition, or the buyer walking. Surprise kills deals: what the seller discloses proactively in the CIM and documents in the data room carries less weight than what the buyer's accountant finds on their own. More in due diligence and representations and warranties.

Can I prepare my company for due diligence without hiring a Big 4 myself?

Yes. You do not need to be audited by a Big 4 as the seller. What you need is: (1) an EBITDA normalization bridge with support for each adjustment, (2) organized tax and labor documentation, (3) key contracts located and reviewed, (4) disclosure in the CIM of known risks before opening the data room. The EBITDA calculator and the guide to preparing the data room give you the structure; an advisor can review that nothing critical is missing before the buyer comes in. Preparation does not prevent the buyer from doing their diligence; it reduces the room for surprises that kill the deal.