Your Due Diligence Roadmap
A due diligence checklist organizes everything a buyer needs to verify before closing, across financial, legal, operational, employee, lease, and tax categories. Due diligence is the buyer's most important protection (see how to perform due diligence), and a checklist ensures nothing critical is missed. Use this as a roadmap, then dig deep into each area with your advisors. Sellers can use it too, to prepare for the scrutiny ahead.
Whether you're a buyer verifying a business or a seller preparing for scrutiny, get a broker's guidance to keep the deal on track.
Financial Items
- Three years of tax returns, P&Ls, and balance sheets, plus year-to-date
- Bank statements and merchant-processing statements
- The add-back / SDE schedule with support
- Accounts receivable and payable aging
- A business debt schedule
- Revenue detail by customer, product, and recurring vs. one-time
Covered in depth in financial due diligence.
Legal Items
- Entity documents, good standing, and ownership records
- Liens and UCC filings
- Key contracts (customer, supplier, vendor) and their assignability
- Litigation, claims, and disputes, past and pending
- Licenses, permits, and their transferability
- Intellectual property, trademarks, and domains
See legal due diligence.
Operational, Employee, and Lease Items
- Customer concentration and retention data
- Supplier relationships and terms
- Employee roster, roles, compensation, agreements, and classification
- Standard operating procedures and systems
- Equipment / fixed-asset list and inventory
- The lease — term, options, assignability, and rent
Tax and Other Items
- Tax compliance, outstanding liabilities, and clearances
- Insurance policies and claims history
- Environmental matters (for relevant industries)
- Regulatory and compliance status
How to Use the Checklist
Request these items early in the post-LOI period, and work through them with your CPA and attorney. A cooperative seller provides them promptly, a reluctant one is itself a finding. As you verify each area, note issues for potential renegotiation or, if serious, a decision to walk away. Being systematic is how buyers avoid nasty surprises after closing.
Note: This article is general educational information, not legal, tax, or accounting advice. Work with a qualified attorney, CPA, and advisors on due diligence for your specific deal.
Frequently Asked Questions
What is on a business due diligence checklist?
A due diligence checklist covers financial items (tax returns, P&Ls, bank statements, add-back schedule, AR/AP aging, debt), legal items (entity records, liens, contracts, litigation, licenses, IP), operational items (customer concentration, suppliers, SOPs, equipment), employee items (roster, compensation, classification), the lease, and tax compliance and clearances.
When do you use a due diligence checklist?
During the due diligence period after the Letter of Intent is signed, typically 30 to 60 days. The buyer requests the checklist items from the seller early and works through them with a CPA and attorney to verify the business before closing. Sellers can also use it in advance to prepare for the scrutiny.
What are the main categories of due diligence?
The main categories are financial (verifying earnings), legal (entity, contracts, litigation, licenses, IP), operational (customers, suppliers, systems), employee (roster, compensation, classification, retention), lease (term, assignability, rent), and tax (compliance, liabilities, clearances). Each is a deep area that deserves careful review with advisors.
Who provides the due diligence documents?
The seller provides the documents in response to the buyer's requests. A cooperative, organized seller supplies them promptly, which keeps the deal moving, while a reluctant or slow seller is itself a warning sign. Buyers should request items early and involve their CPA and attorney in reviewing them.
Starting Due Diligence?
Martin Navarro helps buyers run thorough, organized due diligence so nothing gets missed. Let's talk, confidentially and with no obligation.
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