The Due Diligence Checklist Every Buyer Needs

Due diligence is not about distrust; it is about replacing stories with evidence while both sides still have choices. Run it in phases, cheapest checks first, so a deal that is going to die does so before you have paid for the expensive work.

Phase 1 — Financial reality (weeks 1–2)

• Three years of tax returns, reconciled against the P&Ls you were shown. Small gaps are normal; patterns are not.
• Monthly revenue for 24–36 months to expose seasonality and trend, not just annual totals.
• Bank and merchant statements sampled against reported deposits.
• The add-back schedule, line by line. Every add-back is a claim; make the seller prove each one.
• Accounts receivable aging — revenue that never collects is not revenue.

Phase 2 — Operations and people (weeks 2–4)

• Customer concentration: any client above 10–15% of revenue deserves its own risk conversation.
• Staff roster with tenure, pay and any handshake arrangements the books do not show.
• Equipment condition and maintenance logs; get a specialist inspection for anything expensive to replace.
• Supplier and vendor agreements — which ones transfer, and which were priced on a personal relationship?
• Systems and data: does the business run on documented processes, or on the seller's memory?

Phase 3 — Legal and structural (weeks 3–6)

• Lease assignment terms, renewal options and any demolition or redevelopment clauses.
• Licenses and permits: confirm they transfer, and how long the transfer takes — liquor licenses and healthcare credentials are notorious schedule-breakers.
• Litigation, liens and UCC filings against the company and its assets.
• Employment classification and accrued liabilities (vacation, warranties, gift cards, deposits).

Keep the deal honest

Work from a written request list with dates, keep every document in one shared room, and revisit price with data rather than emotion — a discovered problem is a negotiation point, not automatically an exit. And hold something back at closing: an escrow holdback or short seller note aligned to the representations you relied on is the cheapest insurance a buyer can get.