Kishen Patel
Founder, Consult EFC | ICAEW Chartered Accountant
Kishen helps founders translate complex SaaS metrics into a defensible business valuation. He specialises in “Diligence-Ready” financial modelling to ensure that recurring revenue holds up under pressure and that owners keep more of their equity upon exit.
Table of Contents
SaaS Due Diligence Checklist: The 5 Essential Pillars
Before deep-diving into the data room, ensure these five areas are documented and reconciled:
- Financial Quality: Evidence of MRR and ARR reconciled against bank statements.
- Unit Economics: Proven LTV to CAC ratios and clear payback period trends.
- Product and Tech: Documented architecture plus scalability and AI governance plans.
- Legal and Security: Full IP assignment and GDPR compliance across all jurisdictions.
- Operational Maturity: Systems that reduce founder dependency and key-person risk.
Due diligence is where high growth meets the cold hard truth. For many founders, it is the moment they realise a £20M valuation can drop to £15M simply because their data room is a mess.
This SaaS due diligence checklist acts as a comprehensive M&A framework; it is your defence during a Quality of Earnings (QofE) audit or investor technical review. It is a practical fact-check – an MOT for your SaaS – designed to prove how you make money, retain customers, and scale without breaking. Use this to reduce back-and-forth and protect your price when the questions get detailed.
Free SaaS Exit Readiness Audit
Is your SaaS data room defensible against investor scrutiny? Spend 30 minutes with Kish Patel to stress-test your core metrics before you open your records to a buyer.
We will review your MRR bridge to ensure your recurring revenue holds up against bank-level reconciliation.
Identify the risk-adjustments needed for your LTV and CAC data to align with current 2026 buyer trends.
● Currently accepting 2 readiness audits per week.
SaaS Quality of Earnings: Focus on Revenue Quality and ARR Integrity
⚠️ Pro-Tip: The Double-Count Red Flag
Sophisticated buyers look for “Services Revenue” disguised as “SaaS MRR”. If your one-off implementation fees are bundled into recurring revenue figures to inflate your valuation multiple, it will be flagged during the audit. Keep these streams strictly separate to maintain your credibility during the deal.
During a SaaS Quality of Earnings (QofE) review, the focus shifts from reported revenue to revenue recognition under FRS 102 or IFRS 15 accuracy. Big topline numbers look great until someone asks, “Can you prove them?” Revenue quality is about trust. If your recurring revenue ties back to billing, bank statements or contracts and complies with Revenue Recognition standards like IFRS 15 or FRS 102 – it holds up under pressure. If it doesn’t, the deal slows down, or the price drops.
Start by pulling core figures straight from your billing system and bank. Then reconcile them to your internal reports. Keep a simple note of what you matched, what differed, and why. That reconciliation note often saves days.
Essential SaaS M&A Metrics: Proving Recurring Revenue and Retention
Strong SaaS reporting is boring in the best way. It’s consistent, repeatable, and easy to follow. The aim is to show that your MRR, churn, and retention aren’t “estimated”, they’re calculated the same way every month.
Use this table as your evidence pack. Keep it in one folder, and keep the raw exports alongside the final charts.
After you compile this, write one page called “KPI Definitions”. Keep it plain English. For example, define what counts as churn, when you recognise upgrades, and how you treat paused accounts. Consistent definitions stop arguments later.
SaaS Unit Economics for Investors: Does Growth Create Enterprise Value?
💡 Insight: The Cohort Reality Check
A blended churn rate often hides the truth. Investors will look for cohort-based retention to see if your newest customers are staying as long as your early adopters. If your recent cohorts show higher churn, it suggests a product-market fit issue that no amount of top-line growth can mask.
Revenue answers “how big?”, but unit economics and your Normalised EBITDA answers “how healthy?”. Buyers and investors will check whether growth creates cash over time, or whether every new customer adds hidden strain.
Keep the story simple and grounded in data. If your CAC varies by channel, show that clearly. If LTV uses assumptions, state them, and show the supporting history.
Focus on evidence you can export and reconcile:
Unit Economics: The Evidence Checklist
Make it easy to audit. Include source-of-truth exports, plus a short reconciliation note. When numbers tie out cleanly, the conversation moves to growth, not doubt.
SaaS Technical Due Diligence: Reducing Risk in Product and Infrastructure
Most deals don’t fall apart because the product is “bad”. They fall apart because risk shows up late. A buyer worries about scaling, maintainability, or whether the team can ship safely without outages. The fix is to show working systems and a sensible delivery rhythm.
Think evidence, not opinions. Repositories, dashboards, incident logs, and product analytics tell a clearer story than slide decks.
Product Due Diligence: ICP Alignment, Roadmap, and AI Governance
🤖 2026 Strategy: The AI Margin Trap
When auditing AI features, buyers now calculate the Inference-to-Revenue ratio. If your model costs scale linearly with your user growth, your gross margins may compress over time. Be prepared to show your roadmap for model optimisation or how you plan to shift to more cost-effective small language models (SLMs).
A good product section links three things: the customer you target, the value they get, and how you decide what to build next. Without that link, a buyer may assume retention is luck.
Prepare a short product narrative, then back it with artefacts:
Product Proof: The Narrative Checklist
Don’t over-polish this section. Buyers trust teams who can say, “Here’s what’s working, here’s what isn’t, and here’s what we’re doing about it.”
Engineering Audit: Scalability, Code Quality, and Technical Debt
Engineering diligence is about reducing delivery risk. The buyer wants to know the product will keep working as usage grows, and that releases won’t create chaos. A tidy set of technical artefacts makes this much easier.
Here’s a practical set to gather:
If AI is part of the product, add a plain-language page on: model inputs, training data rights, how you evaluate outputs, and how you monitor drift (when results get worse over time). Also show how you reduce hallucinations, for example with retrieval sources, guardrails, and human review on high-risk actions.
Legal and Cyber Security Due Diligence: Protecting Your SaaS Exit
In 2026, security reviews are normal, even for smaller SaaS businesses. GDPR expectations are also higher because customers ask tougher questions. The goal isn’t box-ticking. It’s buyer comfort and customer protection, backed by evidence.
Keep policies short, current, and aligned to reality. A perfect policy that doesn’t match your actual practice creates more risk, not less.
Security and privacy evidence to have ready before anyone asks
Security diligence moves fast when you can show artefacts with dates and owners. Even if you’re not certified, you can still show a well-run security process.
Build a folder that contains:
- Data flow map, showing what data you collect, where it goes, and who can access it.
- Encryption approach, covering data in transit and at rest, plus key management basics.
- Access controls, including MFA, role-based access control, and least-privilege reviews.
- Vulnerability management, with scanning cadence, patch process, and a simple remediation log.
- Pen test or security review results (if you have them), plus evidence you fixed priority findings.
- Incident response plan, with the date of the last tabletop test.
- Audit trails and logs, showing you can trace access and changes.
- Vendor risk notes for key suppliers, especially hosting, authentication, payments, and data processors.
- GDPR essentials, including lawful basis, DPA templates, subprocessor list, and deletion process.
- Retention and deletion policy, matched to how the product actually deletes data.
Keep it simple: artefact, owner, date, and where the evidence lives. That’s what reduces friction.
If you sell outside the UK and EU, be ready to explain international transfers and subprocessor controls. Don’t wait until procurement asks.
Legal and commercial contracts that can hide nasty surprises
Legal diligence is where “small” side letters become big problems. A single customer clause can block a sale, reduce value, or force contract rewrites under time pressure.
Create an indexed contract set, then flag exceptions early:
- Cap table and option pool, including board approvals and any unusual terms.
- IP ownership, with founder and employee assignment agreements signed and filed.
- Contractor agreements, confirming IP assignment and confidentiality.
- Customer contracts, including SLAs, liability caps, and any non-standard concessions.
- Renewal and termination terms, especially auto-renew clauses and notice periods.
- Pricing promises and side letters, with who approved them and why.
- Partner, reseller, and referral agreements, including exclusivity or territory limits.
- Key supplier contracts, plus renewal dates and termination rights.
- Disputes and claims, even if “informal”, including settlement discussions.
- Insurance cover, such as cyber and professional indemnity, plus claims history.
Flag change-of-control clauses early. If a key customer can terminate on acquisition, you need a plan before the buyer finds it.
This section often determines pace. Clean contracts keep momentum.
SaaS Operational Due Diligence: Team Structure and Key-Person Risk
Buyers and investors aren’t only buying code. They’re buying execution. If everything relies on one founder’s memory, it raises risk. If processes are repeatable, the business becomes easier to scale, and easier to hand over.
Aim to show clear ownership, sensible routines, and documentation that a new team can follow.
Team structure, key-person risk, and incentives that align
People diligence is about clarity. Who owns what? What breaks if a key person leaves? Are incentives aligned with long-term value?
Prepare a small set of documents that answer those questions:
- Org chart, with role clarity and reporting lines.
- Key roles and gaps, across sales, product, engineering, and finance.
- Founder time split, so it’s clear where the business depends on founders day to day.
- Hiring plan tied to targets, showing headcount decisions aren’t guesswork.
- Employment terms for key staff, plus notice periods and any special arrangements.
- Incentives and vesting, with option grants documented and approved.
- Turnover and retention, even if just a simple summary by year.
- Where knowledge lives, such as runbooks, onboarding notes, and system ownership.
If you have a strong documentation culture, show it. It signals maturity more than a long narrative ever could.
Operating basics that show control and maturity
Operations diligence tends to expose “small leaks” that become big later. Billing errors, slow month-end closes, and messy support processes all create noise. The fix is basic control.
Bring together evidence that the business runs in a repeatable way:
- Billing operations, including how you handle refunds, credits, failed payments, and disputes.
- Revenue recognition approach, high level and consistent, with clear treatment of annual prepay.
- Month-end close routine, including timing, approvals, and reconciliations.
- Board and investor reporting cadence, even if lightweight, with the same KPIs each month.
- KPI dashboard ownership, so each key metric has a named owner.
- Customer support process, response times, escalation path, and tooling.
- Onboarding and implementation steps, especially if you have services revenue or set-up work.
- Data room index, with version control, and a clear folder structure.
A simple habit helps here: date every document and assign an owner. When someone asks, “Is this current?”, you’ll have a clear answer.
How Consult EFC can help
Due diligence goes smoothly when evidence is organised and your metrics match reality. Start by appointing one owner, then build a simple data room structure. Reconcile revenue numbers first, because they drive valuation. Next, tidy security and contracts, then move to tech and operations.
If you want support getting due diligence-ready without chaos or help with exit readiness, Consult EFC can help you prepare, clarify the story in your numbers, and reduce deal risk before the pressure is on.
Free SaaS Exit Readiness Audit
Is your SaaS data room defensible against investor scrutiny? Spend 30 minutes with Kish Patel to stress-test your core metrics before you open your records to a buyer.
We will review your MRR bridge to ensure your recurring revenue holds up against bank-level reconciliation.
Identify the risk-adjustments needed for your LTV and CAC data to align with current 2026 buyer trends.
● Currently accepting 2 readiness audits per week.
