Due diligence is the buyer's structured investigation of a business between the LOI and closing, verifying financials, taxes, contracts, legal standing, and operations to confirm the business is what the seller claims before committing.
Worked example
| Area | What you verify |
|---|---|
| Financial | Quality of earnings, tax returns, add-backs |
| Legal | Lien / UCC searches, contracts, licenses |
| Commercial | Customer concentration, lease, suppliers |
| Operational | Systems, staff, owner dependence |
Findings feed straight into price, deal structure, and the reps you demand.
Why it matters when buying a business
Diligence is where deals get repriced, restructured, or killed. A quality-of-earnings review confirms the SDE you're paying a multiple on, and anything you can't verify should be covered by reps and warranties and an escrow holdback. Tie your LOI contingencies to diligence so you can walk if the numbers don't hold.
