The Due Diligence Checklist for Buying a Small Business

Due diligence is where good deals are confirmed and bad deals are caught. This checklist covers the essential items every buyer should verify before closing on a business acquisition.

Financial Due Diligence

• Three years of profit and loss statements
• Three years of business tax returns
• Balance sheet and accounts receivable/payable aging
• Bank statements to verify reported revenue
• Add-back schedule for owner discretionary expenses
• Monthly financials to spot seasonality

Legal Due Diligence

• Business entity documents and good standing
• All contracts: customers, suppliers, leases
• Outstanding litigation or liens
• Licenses and permits required to operate
• Intellectual property and trademarks
• Employee agreements and any non-competes

Operational Due Diligence

• Documented standard operating procedures
• Key employee roles and retention risk
• Equipment condition and maintenance records
• Inventory verification
• Software, systems, and technology stack

Commercial Due Diligence

• Customer concentration analysis
• Customer retention and satisfaction
• Competitive landscape
• Market trends affecting the business
• Supplier reliability and pricing stability

The Transition Plan

• Confirm the owner's training commitment in writing
• Identify which relationships need a personal handoff
• Plan for customer and employee communication post-sale

The Bottom Line

Thorough due diligence protects your investment and gives you the knowledge to operate confidently from day one. Don't rush it — and lean on an accountant and attorney for the financial and legal portions.

An attorney experienced in acquisitions is invaluable here. Find professional support →

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