Due diligence checklist

Download the Checklist (Word)

When you use this checklist

Start diligence the day your LOI is signed and exclusivity begins. Send the seller a request list early, the whole section list below doubles as your document request. Run financial verification in parallel with your SBA lender's underwriting; they'll want much of the same paperwork. Aim to finish within your diligence period so you can either move to a definitive purchase agreement or exit cleanly.

1. Financial due diligence

• ☐ Profit & loss statements, last 3 full years plus year-to-date
• ☐ Balance sheets, last 3 years plus current
• ☐ Federal business tax returns, last 3 years (reconcile to the P&L)
• ☐ Bank statements, last 12 to 24 months (reconcile to reported revenue)
• ☐ Merchant / payment processor statements (verify card revenue independently)
• ☐ General ledger and chart of accounts
• ☐ Accounts receivable aging, check for slow or uncollectible balances
• ☐ Accounts payable aging, check for stretched vendors
• ☐ Add-back schedule test every add-back for legitimacy and documentation
• ☐ Normalized SDE / EBITDA calculation, does it match what the broker advertised?
• ☐ Monthly revenue trend, is it growing, flat, or quietly declining?
• ☐ Gross margin trend by product/service line
• ☐ Owner compensation and personal expenses run through the business
• ☐ Debt schedule, all loans, lines of credit, and leases
• ☐ Capital expenditure history and near-term needs (deferred maintenance?)
• ☐ Working capital analysis, how much does the business need to run?

2. Legal & entity due diligence

• ☐ Articles of incorporation / organization and bylaws or operating agreement
• ☐ Certificate of good standing from the Secretary of State
• ☐ Cap table / ownership records, who actually owns the business?
• ☐ Confirmation of clean title to all assets being sold
• ☐ UCC lien search, are assets pledged as collateral to a lender?
• ☐ Pending or threatened litigation (past 5 years)
• ☐ Judgments, liens, or settlements
• ☐ Regulatory investigations or violations
• ☐ Corporate minute book and material resolutions
• ☐ Insurance policies and claims history (general liability, property, workers' comp)

3. Operations

• ☐ How the business actually makes money, walk the full workflow
• ☐ Standard operating procedures, documented or in the owner's head?
• ☐ Owner's weekly role and hours, how dependent is the business on them?
• ☐ Key-person risk, what breaks if the owner or a key employee leaves?
• ☐ Equipment and asset list with age and condition
• ☐ Facilities and premises walkthrough
• ☐ Inventory count and valuation (obsolete or dead stock?)
• ☐ Supplier and vendor list, concentration and switching cost
• ☐ Capacity, can the business grow without major new investment?
• ☐ Seasonality of revenue and cash flow

4. Customers & revenue concentration

• ☐ Revenue by customer, what % comes from the top 1, 5, and 10 customers?
• ☐ Customer contracts vs. handshake / repeat relationships
• ☐ Customer tenure and churn, how long do customers stay?
• ☐ Recurring vs. one-time revenue mix
• ☐ How customers were acquired, referral, marketing, owner's relationships?
• ☐ Whether key customers will stay after the owner leaves (relationship risk)
• ☐ Pipeline / backlog of committed future work
• ☐ Online reviews and reputation (Google, industry sites)

5. Employees & HR

• ☐ Org chart with roles, tenure, and compensation
• ☐ Which employees are essential to operations continuing
• ☐ Employment agreements, offer letters, and any equity/bonus plans
• ☐ Independent contractor vs. employee classification (misclassification risk)
• ☐ Payroll records and PTO / accrued liabilities
• ☐ Benefits, retirement plans, and any unfunded obligations
• ☐ Employee handbook and HR policies
• ☐ Any union or collective bargaining agreements
• ☐ History of turnover, disputes, or claims
• ☐ Which key employees will stay post-close, and on what terms

6. Contracts & leases

• ☐ Premises lease, term, rent, renewal options, and whether it's assignable
• ☐ Landlord consent to assignment (SBA lenders usually require a lease term that matches or exceeds the loan)
• ☐ Customer and supplier contracts, assignability and change-of-control clauses
• ☐ Equipment leases and financing agreements
• ☐ Franchise agreement, if applicable, and franchisor transfer approval
• ☐ Software, SaaS, and subscription agreements
• ☐ Non-compete or exclusivity agreements the business is bound by
• ☐ Any personal guarantees the seller signed that must be released

7. Licenses, permits & compliance

• ☐ Business licenses, federal, state, and local
• ☐ Industry-specific permits (contractor, health, environmental, liquor, etc.)
• ☐ Whether each license is transferable or must be re-applied for by the buyer
• ☐ Professional certifications required to operate
• ☐ Environmental compliance and any Phase I concerns (for real property)
• ☐ OSHA / safety compliance history
• ☐ Data privacy and industry compliance obligations

8. Tax

• ☐ Federal, state, and local tax returns, last 3 years
• ☐ Payroll tax filings and proof they're current
• ☐ Sales/use tax registration, filings, and any exposure
• ☐ Any open audits, notices, or disputes with a taxing authority
• ☐ Property tax bills and current status
• ☐ Confirmation there are no tax liens on the business or assets
• ☐ Purchase price allocation plan (for an asset deal, affects your future taxes)

9. IT & systems

• ☐ List of core software and systems (accounting, CRM, POS, scheduling)
• ☐ Whether logins, domains, and licenses transfer to the buyer
• ☐ Website, domain names, and hosting ownership
• ☐ Customer/CRM data ownership and portability
• ☐ Social media accounts and business listings (Google Business Profile)
• ☐ Data backups, security, and any past breaches
• ☐ Reliance on any custom or legacy system only the owner understands

10. Red flags to watch for

• ☐ Reported profit that doesn't reconcile to tax returns or bank deposits
• ☐ "Cash business" revenue that can't be independently verified
• ☐ Add-backs that are aggressive, undocumented, or really ongoing costs
• ☐ Revenue that's been quietly declining for 2+ years
• ☐ One customer, supplier, or employee the whole business depends on
• ☐ The owner is the business, customers buy because of them personally
• ☐ Deferred maintenance or capex the seller hid from the P&L
• ☐ A seller who's evasive, slow, or won't put things in writing
• ☐ A lease that can't be assigned or expires soon
• ☐ Pending litigation, tax, or regulatory problems
• ☐ A price that only works if you believe optimistic projections, not history

Findings & price impact

Keep a running log as you go. For each finding, note: what you found, whether it changes value, and how you'll handle it (renegotiate price, add an escrow/holdback, require a fix before close, or walk).

How to use this checklist

1. Turn it into your document request. Send the seller the section headings as a request list on day one of diligence.
2. Verify, don't just collect. A stack of documents isn't diligence. Reconcile the numbers, call references, and confirm facts independently.
3. Run it in parallel with the SBA lender. Your lender wants much of the same paperwork for underwriting, share the load.
4. Bring in pros for the hard parts. A CPA / QoE provider on financials, an attorney on legal, contracts, and the lease.
5. Let findings drive price. Diligence isn't a box-check, it's your leverage to adjust the deal or walk before you're committed.

Frequently asked questions

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Last updated: July 2026 · Reviewed by the Acquisition Ace team