Due Diligence Checklist: 47 Things to Verify Before Buying a Business

Why this list exists

Most failed acquisitions can be traced to something the buyer should have caught in due diligence. This checklist covers the 47 verification items that matter — organized so you can sequence them across a typical 30–45 day diligence period.

Week 1: financial verification

- 3 years of tax returns (vs internal statements — variances >5% need explanation)

- Trailing 12-month P&L by month (look for seasonality, declining trends)

- Balance sheet at month-end for the last 12 months

- Bank statements (verify deposits match revenue)

- A/R aging (anything >90 days is suspect)

- A/P aging (vendors stretched? deferred payments?)

- Inventory listing with age and turnover by SKU

- All add-backs documented with receipts

Week 2: customers and contracts

- Top-10 customer list with revenue % (concentration risk)

- Customer retention rates (logo and revenue)

- All customer contracts (assignment clauses matter — does sale trigger termination?)

- Any contracts up for renewal in next 12 months

- Sales pipeline and recent win/loss

- Any customer disputes, chargebacks, or open complaints

- Marketing spend efficiency (CAC, payback)

Week 3: operations and people

- Employee roster: roles, salaries, tenure, contract types

- Non-compete and confidentiality agreements in place?

- Key-employee retention plan (who walks if the deal closes?)

- Org chart and owner-dependence assessment

- Lease(s): term, renewal options, assignment rights, rent escalators

- Equipment list with age, condition, and remaining useful life

- Inventory of intellectual property (trademarks, software, processes)

- IT systems and licenses (transferable on sale?)

- Insurance policies and recent claims

Week 4: legal, regulatory, environmental

- Corporate records and good-standing certificates

- All licenses and permits (transferable?)

- Pending or threatened litigation

- Tax compliance (sales tax, payroll tax, federal/state filings)

- Environmental assessments (manufacturing, F&B, anything with hazardous materials)

- HR compliance (wage and hour, worker classification)

- Privacy/data handling (especially relevant in healthcare, financial)

- Any regulatory inquiries or open investigations

Throughout: cultural & operational reality check

- On-site visit (minimum 1 day; for retail/hospitality, 2–3 days at different times)

- Customer interviews (with seller's permission, late in process)

- Vendor calls (verify pricing, payment terms, relationship strength)

- Employee interviews post-LOI (carefully)

Red flags that should make you walk

Cash sales materially exceed deposits (under-reported revenue). Customer concentration >40% in one account without long-term contract. Owner unwilling to provide a 90-day transition. Material litigation undisclosed at LOI. Inventory aged >12 months with no plan. Working-capital trends sharply negative over diligence period.

Bring in specialists

Don't DIY everything. Engage: an accountant for QoE (Quality of Earnings) for deals >$1M; a lawyer for the purchase agreement; an environmental consultant if applicable. The $15–30K spent on a real QoE has saved more deals than any other line item.