Due diligence is where you confirm that the business is what the seller says it is. Use this checklist as a starting point and have your accountant and lawyer review everything.
Financial
- Three years of financial statements and tax returns
- Bank statements that match reported revenue
- Monthly sales trend, seasonality and margins
- Debts, liens and outstanding payables
- Any add-backs used to calculate cash flow, with proof
Customers and revenue
- Top customers and how much revenue each brings
- Contracts, renewals and cancellation terms
- Repeat versus one-time revenue
Operations
- How much the business depends on the owner
- Key employees, pay and whether they will stay
- Suppliers and any single points of failure
- Equipment condition and age
Legal
- Lease terms and whether it transfers to you
- Licences, permits and insurance
- Trademarks, domain names and other intellectual property
- Pending or past disputes
Red flags
- The seller cannot or will not produce records
- Sales look different in bank statements than in reports
- Most revenue comes from one customer
- The seller wants a fast close with little review
Want to see what a business would cost to finance?
Every listing has a Deal Check with the monthly payment and whether cash flow covers it.
This article is general education, not financial, legal or tax advice. Talk to a qualified accountant and lawyer before you buy, sell or invest.