Due Diligence Costs: What Buyers and Sellers Should Expect
A detailed overview of the expected due diligence costs in a company purchase or sale. Learn about the cost factors arising from different types of audits and how to optimize them.
A thorough due diligence is the key to a successful business transaction. However, what many potential buyers and sellers underestimate are the associated costs. These can vary significantly depending on the company size, complexity, and scope of the review. In this article, we break down the typical cost factors and show what you can expect with the various types of due diligence.
Why Due Diligence Is Essential
Before we dive into the specific costs, it is important to understand why due diligence is indispensable for both parties:
- For Buyers: Minimizing risks, identifying hidden issues, realistic company valuation
- For Sellers: Preparing for critical questions, achieving higher sale prices through transparency, accelerating transactions
Note: While thorough due diligence does incur costs, it can prevent significantly higher expenses caused by poor decisions in the long run. Reputable M&A advisors unanimously recommend it.
Typical Cost Factors in Due Diligence
The total costs of due diligence consist of various factors:
1. Scope and Depth of the Review
The more comprehensive the review, the higher the costs. The most common types of due diligence are:
- Financial Due Diligence: Analysis of financial data and forecasts
- Legal Due Diligence: Examination of legal aspects and contracts
- Tax Due Diligence: Investigation of tax risks
- Commercial Due Diligence: Analysis of market, competition, and business model
- Technical Due Diligence: Review of facilities, technologies, and products
- HR Due Diligence: Analysis of personnel structure and contracts
- ESG Due Diligence: Assessment of environmental, social, and governance factors
2. Company Size and Complexity
A decisive cost factor is the size and complexity of the company being reviewed:
- Small businesses (revenue up to €2 million)
- Medium-sized enterprises (revenue €2–50 million)
- Larger mid-sized companies (revenue €50–250 million)
- Large corporations (revenue over €250 million)
3. Industry-Specific Requirements
Depending on the industry, additional reviews may be necessary:
- Regulated industries (financial services, pharmaceuticals)
- Technology companies (buying IT companies)
- Manufacturing companies (buying manufacturing businesses)
- E-commerce (buying e-commerce companies)
4. Timeframe of the Review
A tight timeframe often requires larger teams and can increase costs:
- Standard timeframe: 4–8 weeks
- Accelerated process: 2–4 weeks
- Express due diligence: under 2 weeks (with surcharge)
Specific Cost Areas for Different Types of Due Diligence
Financial Due Diligence
Financial due diligence examines the company’s financial condition and performance.
| Company Size | Typical Cost Range |
|---|---|
| Small (up to €2 million) | €8,000 – €15,000 |
| Medium-sized (€2–50 million) | €15,000 – €40,000 |
| Larger mid-sized (€50–250 million) | €40,000 – €100,000 |
| Large corporations (€250+ million) | €100,000+ |
Practical tip: For smaller transactions, a focused financial due diligence concentrating on key metrics and risks can be effective.
Legal Due Diligence
The legal review examines contracts, litigation, and legal risks.
| Company Size | Typical Cost Range |
|---|---|
| Small (up to €2 million) | €5,000 – €12,000 |
| Medium-sized (€2–50 million) | €12,000 – €35,000 |
| Larger mid-sized (€50–250 million) | €35,000 – €80,000 |
| Large corporations (€250+ million) | €80,000+ |
Cost trap: Watch out for legal hourly rates, which can range from €200 to €500 per hour depending on the firm and seniority.
Tax Due Diligence
Tax due diligence identifies potential tax risks and optimization opportunities.
| Company Size | Typical Cost Range |
|---|---|
| Small (up to €2 million) | €4,000 – €10,000 |
| Medium-sized (€2–50 million) | €10,000 – €25,000 |
| Larger mid-sized (€50–250 million) | €25,000 – €60,000 |
| Large corporations (€250+ million) | €60,000+ |
The tax optimization during sale can quickly offset the costs of tax due diligence.
Commercial Due Diligence
This review analyzes the market environment, competitive position, and business model.
| Company Size | Typical Cost Range |
|---|---|
| Small (up to €2 million) | €6,000 – €15,000 |
| Medium-sized (€2–50 million) | €15,000 – €40,000 |
| Larger mid-sized (€50–250 million) | €40,000 – €90,000 |
| Large corporations (€250+ million) | €90,000+ |
For online businesses and digital business models, additional costs often arise for specialized analyses.
Technical Due Diligence
Particularly important for manufacturing companies or IT companies.
| Company Size | Typical Cost Range |
|---|---|
| Small (up to €2 million) | €5,000 – €12,000 |
| Medium-sized (€2–50 million) | €12,000 – €30,000 |
| Larger mid-sized (€50–250 million) | €30,000 – €70,000 |
| Large corporations (€250+ million) | €70,000+ |
Total Costs of a Comprehensive Due Diligence
Combining the various types of reviews results in the following total cost ranges:
| Company Size | Typical Total Cost Range |
|---|---|
| Small (up to €2 million) | €15,000 – €40,000 (approx. 1–3% of company value) |
| Medium-sized (€2–50 million) | €40,000 – €120,000 (approx. 0.5–2% of company value) |
| Larger mid-sized (€50–250 million) | €120,000 – €300,000 (approx. 0.3–1% of company value) |
| Large corporations (€250+ million) | €300,000+ (approx. 0.1–0.5% of company value) |
Important: These costs can vary greatly depending on industry, complexity, and geographic location. For international transactions, travel expenses and local advisor fees often add up.
Who Bears the Costs of Due Diligence?
The cost allocation between buyer and seller generally follows these principles:
- Buyer usually bears the costs of the due diligence they initiate
- Seller covers the costs of preparation, data room, and vendor due diligence
- In a structured sales process with multiple bidders, the seller may conduct a vendor due diligence to accelerate the process
Strategies for Cost Optimization
For Buyers:
- Phased Review: Start with a basic due diligence and deepen only critical areas
- Clear Prioritization: Focus on the biggest risks and value drivers
- Cost Caps: Agree on fixed price limits with advisors instead of open hourly billing
- Use Internal Resources: Handle simpler review parts with your own staff
- Advisor Selection: Compare offers from different advisors—larger firms are not always necessary
For Sellers:
- Good Preparation: A structured preparation of the company sale saves costs later
- Complete Data Room: Provide all relevant documents early
- Vendor Due Diligence: For larger transactions, a pre-sale review can speed up the process
- Red-Flag Report: A more cost-effective alternative to full vendor due diligence
- Engage M&A Advisors: An experienced M&A advisor can make the process more efficient
Practical tip: For smaller transactions under €1 million, a simplified due diligence focusing on key risk areas can be sensible.
The Most Common Cost Traps in Due Diligence
- Insufficient Preparation: Leads to follow-up questions and additional review hours
- Too Broad Scope: Not every transaction requires all types of due diligence
- Wrong Advisor Selection: Oversized or overly specialized teams can cause unnecessary costs
- Lack of Cost Control: Open mandates without cost caps can become expensive
- Time Pressure: Last-minute transactions require larger teams and cause higher costs
Regional Cost Differences in Germany
Due diligence costs can vary by region:
- Major cities (Berlin, Hamburg, Munich): 10–20% higher hourly rates
- Economically strong regions (Baden-Württemberg, North Rhine-Westphalia): Average costs
- Rural areas (Thuringia, Saxony-Anhalt): 10–15% lower costs
Due Diligence in Industry-Specific Business Acquisitions
Costs can vary significantly depending on the industry:
- IT and Software: Higher costs for technical due diligence (buying IT system houses)
- Craft Trades: Focus on order backlog and personnel (selling craft businesses)
- E-Commerce: Evaluation of online metrics and platform dependencies (buying Amazon FBA businesses)
- Gastronomy: Special review of hygiene standards and licenses (buying restaurants)
- Manufacturing: Extensive technical reviews required (buying mechanical engineering companies)
Conclusion: Understanding Due Diligence as an Investment
The costs of due diligence should not be seen merely as an expense but as an investment in a secure transaction. They can protect against unpleasant surprises and help determine the fair value of a company.
For buyers, a thorough review offers the opportunity to uncover hidden risks and negotiate the purchase price accordingly. For sellers, good preparation or vendor due diligence helps achieve a higher sale price and accelerates the process.
With careful planning, clear prioritization, and the right choice of advisors, due diligence costs can be optimized without sacrificing important review aspects.
Note: Skipping due diligence can become the most expensive part of a transaction in the long run. It is better to invest upfront in a solid review than to face unforeseen problems later.
Use our business valuation calculator to get an initial estimate of the company’s value and better calculate appropriate due diligence costs.
Christopher Heckel
Co-Founder & CTO
Christopher has led the digital transformation of financial solutions for SMEs as CTO of SME financier Creditshelf. viaductus was founded with the goal of helping people achieve their financial goals with technology for corporate acquisitions and sales.
About the author
Christopher Heckel
Co-Founder & CTO