5 Common Pitfalls in Due Diligence for SaaS Businesses—and How to Avoid Them

“Due diligence is the least glamorous part of selling your business, but it’s also the most important. Buyers need confidence in your numbers and operations, and being unprepared can cause delays, reduced valuations, or even derail the deal entirely.” Helena Patience, CEO of Entreflow Consulting Group

Due diligence—for SaaS companies often underestimated and poorly prepared for—is one of the most critical and challenging steps in securing a successful acquisition. With 92% of SaaS startups failing within three years, due diligence is vital to showcase your business’s financial health and build trust with investors for long-term success. While founders often focus on product development and sales, many find themselves unprepared when it’s time to validate their business’s stability and potential.

In our recent Synder webinar, “Top Five Failures in Preparing for Due Diligence,” we shared expert advice on how to help startups and scale-ups navigate acquisitions.

Meet the guest speaker

Helina Patience, CPA, CMA, is a seasoned financial expert and CEO with a career spanning more than 20 years in global finance, business operations, and scaling teams. Recognized for her expertise in financial systems and process optimization, Helina supports businesses in achieving sustainable growth while navigating complex challenges. As a thought leader, she speaks often on the topics of finance, leadership, and business strategy.

Below are the top five pitfalls Helena discussed and her actionable advice for overcoming them.

1. Messy financial records

The major cause why acquisitions fail is financial disorganization. A buyer needs to have clear and accurate financial data in order to judge the value and health of a business. If financial records are incomplete or poorly maintained, that will raise red flags regarding the reliability of the company and overall management.

“Messy books are a dealbreaker,” Helena stated. “Buyers lose trust when they see disorganized numbers, and that can significantly impact your valuation—or worse, cause them to walk away entirely.”

Buyers will request a number of financial reports, including monthly trends, segmented revenue streams, cost breakdowns, and reconciliations. Another common area where SaaS companies mess up is deferred revenue—particularly for businesses with annual or quarterly payment cycles. Errors in these areas are expensive—both in terms of time and trust.

Pro tip

“Due diligence isn’t the time for cash-basis accounting. Accurate accrual accounting is essential to presenting a true picture of your business.” Helena Patience, CEO of Entreflow Consulting Group

In preparing for due diligence, it’s very important to use accrual accounting so that your financials truly and accurately reflect your business. Have your records stand up to scrutiny by engaging outside professionals, such as a CPA or bookkeeping firm, to clean and reconcile your books in order to add credibility to your numbers.

Focus on key areas such as deferred revenues, labor costs, and tax liabilities. Make sure your revenue streams are well separated from your costs, using tools like Synder to automate the process so that your financial data is recorded correctly.

Synder – your go-to accounting tool

SaaS businesses can supercharge their finances with Synder RevRec, the ultimate tool for simplifying revenue recognition, subscription updates, and tax management. It makes all the financial processes much easier and keeps your books accurate with powerful automation and flexibility. This, in turn, frees up time, allowing you to concentrate on scaling business operations. Here’s how Synder RevRec transforms SaaS operations:

• Automated revenue recognition: Link Stripe or upload Excel data to record deferred revenue and transfer it to income monthly—no manual effort required.
• Subscription management: Track upgrades, downgrades, cancellations, disputes, or refunds and update records in a GAAP-compliant way.
• Seamless payment tracking: Automatically track open invoices, clear Accounts Receivable upon payment, and update your Profit and Loss statement.
• Tax handling: Ensure tax compliance with Synder RevRec managing tax-inclusive and tax-exclusive scenarios.
• Multicurrency support: Automate exchange rates and record revenue in home currency, tracking gains/losses from fluctuations.
• Stress-free financials: Make sure your books stay clean and focus on growth—no more tedious chores or spreadsheets to wrangle.

Synder isn’t just a tool, it’s like having a personal assistant to keep your financials in tip-top shape. Test it yourself with our 15-day free trial or check out the details during one of our Weekly Public Demos.

2. Lack of forecasting

While many SaaS founders are focused on current performance, buyers are equally—if not more—interested in the company’s future potential. Without the means to project this forward, it can harm buyer confidence and limit the company’s ability to communicate its growth story.

“A forecast isn’t just numbers on a page,” Helena explained. “It’s a narrative about where your company is headed and why a buyer should invest in it.”

Buyers often scrutinize financial forecasts for unrealistic assumptions or missing key elements, such as cash flow projections. A good forecast has to include profit and loss, cash flow, and balance sheet impacts, all interlinked in a way to depict a solid plan of growth.

Pro tip

“Don’t just slap a 5% growth rate onto your projections. Buyers will ask questions, and you need to back up every number with sound reasoning.”  Helena Patience, CEO of Entreflow Consulting Group

It’s of great importance that financial projections be based on a solid foundation. Prepare a detailed three-way projection, covering profit and loss, cash flow, and balance sheet impacts, to present a full picture, financially. Use powerful forecasting tools like Fathom or Sift to dynamically update and perform scenario planning. Most importantly, clearly document your assumptions, as the buyers need to understand the reasoning behind your growth rates, your market expansion plans, and other key metrics.

3. Delaying key communications

Many business owners wait too long to bring key staff members into the due diligence process. It can result in rushed work, confusion, or even distrust among employees who feel blindsided by last-minute requests.

“Your team is your greatest asset during due diligence,” Helena said. “Involving key people early ensures the process runs smoothly and minimizes unnecessary stress.”

Team members, such as HR leads, financial officers, and technical experts, are usually called upon to play critical roles in preparing employee contracts, financial data, and technical documentation. Otherwise, business owners can get overwhelmed and be poorly prepared for buyer requests.

Pro tip

“Don’t wait until the eleventh hour to ask for help. Involving your team early builds trust and prevents costly mistakes.” Helena Patience, CEO of Entreflow Consulting Group

To ensure that the process runs smoothly, bring key members of the team on board very early. Identify the critical players and bring them in under NDAs so that everything remains confidential. Define their roles clearly, so they know what to do in case they have to update the contracts or prepare the technical documentation before the last-minute chaos strikes. Show open communication about how their contributions will drive success.

4. No transition or growth plan

Buyers aren’t buying a company’s past performance, they’re buying its future potential. Without a road map of how the business will transition or grow, purchasers will discount your position and reduce your valuation.

“Think of this as selling the future of your business,” Helena explained. “A strong growth plan helps buyers see untapped opportunities and the value your company can bring under their ownership.”

A buyer will generally seek a deeper understanding of, for example, market expansion plans, team development plans, and product innovation road maps. They’ll also look for a transition strategy that ensures operational continuity post-sale. If you don’t have a well-documented, compelling plan showing how the business can thrive under new ownership, then you run a risk of leaving money on the table and quite possibly, losing out to competitors who have clearer visions.

Pro tip

“This is your chance to show buyers what they might not immediately see,” Helena noted. “A well-thought-out plan can significantly enhance your valuation.”

Shed light on untapped potential in your business: create a strategic roadmap for opportunities, such as new markets, partnerships, or certifications. Make sure that your growth plan is correlated with your financial projections; make the objectives realistic and achievable. It should also lay out any recommendations for the team, such as suggested roles, development plans, or organizational changes that show scalability and pave the way to future success.

5. Hiring the wrong experts

Trying to handle due diligence internally or with inexperienced advisors can result in a lot of mistakes and missed opportunities. Due diligence is a very specialized process that requires deep knowledge in the intricacies of legality, finance, and operations. Without the right expertise, even small errors can have costly consequences.

“Get the right experts on your side,” Helena emphasized. “A good broker or M&A lawyer can save you time, stress, and money.”

Seasoned professionals can help negotiate good terms and prepare, review complicated legal documents necessary in the process. Such professionals may also help the client realize the risks involved and advise them strategically to enable the client to outsmart their competitors. With the right team on board, not only will expensive pitfalls be avoided, but also the deal is executed smoothly to maximum advantage.

Pro tip

“Don’t skimp on expertise,” Helena advised. “The right team pays for itself by securing a better deal and avoiding costly mistakes.”

The key to a successful deal lies in building the right team: one with experienced brokers who can handle negotiations and guide you, an M&A lawyer to negotiate through complex legalities, and finally, experts in financials like a fractional CFO or CPA who would make sure your financials are solid and provide strategic insight to enhance your position.

Wrap-up

Due diligence is the backstop of a successful acquisition; it lays the foundation for a deal that works for both parties. With clean financials, a clear growth plan in place, and surrounded by the right team, a SaaS founder can approach the immensely complex process of due diligence with confidence.

Preparation is key. Starting early, staying organized, and with the help of experienced advisors’ due diligence will proceed smoothly. If done properly, this won’t be just a step in the process but a good opportunity to show the value and potential of your business. And with a toolbox like Synder, that trip will become a lot simpler—because of the accuracy and reliability in financial workflows. 

Keep an eye out for new webinars and resources to help support your success, all along the way.