What is a due diligence checklist? A due diligence checklist is a structured list of documents, verifications, and analyses required before closing a business acquisition. Unlike static generic lists, this tool generates a checklist tailored to your specific business type, deal size, and structure — surfacing what actually matters for your deal.
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What is due diligence in a business acquisition?
Due diligence is the investigation phase before closing a business acquisition — verifying that the business is what the seller claims it is. It covers financial verification (are the numbers real?), legal review (any liabilities or restrictions?), operational assessment (can it run without the owner?), and market analysis (is the business defensible?). Skipping due diligence is how buyers get burned. A thorough process typically takes 3–8 weeks.
How does the checklist generator customize items for my deal?
The generator filters the master checklist based on five parameters: business type (e.g., restaurant deals need health permits and equipment condition reviews; SaaS deals need source code escrow), deal size (larger deals add more formal legal and financial verification layers), asset profile (asset-heavy deals add equipment and inventory verification), franchise status (franchise deals add FDD review, territory rights, and franchisor approval), and employee count (larger headcounts add HR audit and benefits review). Items irrelevant to your deal are hidden — not shown as grayed out.
What documents should I request during due diligence?
Send a formal due diligence request list to the seller immediately after LOI signing. Core documents: 3 years of business tax returns, 3 years of P&L statements (monthly), current balance sheet, 12 months of bank statements, accounts receivable aging, accounts payable aging, complete customer list with revenue, all contracts (customer, vendor, employee), entity documents (articles of incorporation, operating agreement), and pending litigation disclosures. For asset-heavy businesses: add equipment lists with maintenance records. For SaaS: add source code access and customer churn data.
What are the biggest red flags in small business due diligence?
Critical red flags: (1) A single customer representing more than 25% of revenue — if they leave, the business valuation collapses. (2) P&L that doesn't reconcile with tax returns — someone is lying. (3) Key person dependency — the seller IS the business and has no plan for transition. (4) Pending litigation or regulatory investigation — you inherit it. (5) Change-of-control provisions in material customer or vendor contracts — the deal can't close without approval. (6) Undisclosed UCC liens on business assets. Any one of these is a price renegotiation or deal killer.
Do I need a lawyer and CPA for business due diligence?
Yes, for any deal over $100K. Budget $5K–$15K for professional due diligence. A CPA (specifically one with small business M&A experience) should verify financial statements and the SDE calculation — this is where sellers bury personal expenses and inflate earnings. A lawyer should review all material contracts for assignment restrictions and change-of-control clauses, check litigation history, and review the purchase agreement. Use this checklist to organize your own review, then hand it to your advisors. Their time is money — the more organized you are, the lower your legal/accounting bill.