Introduction
Due diligence is the process of verifying everything a seller tells you before you commit to buying their business. It’s the most important phase of any acquisition — and the one most commonly rushed or underestimated by first-time buyers.
In 2026, with business valuations elevated and deal complexity increasing, a thorough due diligence process is non-negotiable. This checklist covers every category you need to review.
1. Financial Due Diligence
- 3 years of P&L statements (income statements)
- 3 years of balance sheets
- 3 years of cash flow statements
- 12 months of bank statements (matching the P&L)
- Tax returns for the last 3 years (federal and state)
- Accounts receivable aging report
- Accounts payable aging report
- Monthly revenue breakdown by product, service, or customer
- EBITDA calculation and verification
- Owner’s compensation and perks (add-backs)
- Outstanding loans, lines of credit, or equipment financing
2. Legal Due Diligence
- Business formation documents (Articles of Incorporation, Operating Agreement, etc.)
- All business licenses and permits — and their transferability
- Any pending litigation, judgments, or legal disputes
- Intellectual property ownership (trademarks, patents, copyrights)
- Employment contracts and non-compete agreements
- Key vendor and supplier contracts
- Customer contracts and any exclusivity arrangements
- Real estate lease — term, renewal options, assignability
- Franchise agreement (if applicable)
3. Operational Due Diligence
- Organisational chart and key employee profiles
- Staff tenure and recent turnover rates
- Standard Operating Procedures (SOPs) and documentation
- Technology systems, software licences, and CRM data
- Inventory count and condition (for product businesses)
- Equipment list, age, condition, and service history
- Supplier relationships and dependency risk
- Customer concentration analysis
4. Tax Due Diligence
- Federal and state tax compliance history — any audits, notices, or disputes?
- Sales tax compliance (especially for e-commerce businesses)
- Payroll tax records and compliance
- Any deferred tax liabilities
- Structure of the sale (asset purchase vs. stock purchase) and tax implications
5. HR and Staff Due Diligence
- Employee handbook and HR policies
- Classification of workers (employee vs. independent contractor)
- Any pending HR complaints, discrimination claims, or OSHA violations
- Benefits obligations — health insurance, 401K, PTO balances
- Key employee retention plans post-acquisition
6. Market and Competitive Due Diligence
- Local and national competitive landscape analysis
- Customer reviews and reputation across Google, Yelp, and industry platforms
- Market size and growth trend for the business’s category
- Dependency on any single platform, algorithm, or regulatory regime
Red Flags That Should Stop a Deal
- Revenue that cannot be verified by bank statements
- A large customer (>30% of revenue) who is not under long-term contract
- Undisclosed litigation or regulatory investigation
- Employee exodus or key staff actively seeking new jobs
- Discrepancies between the seller’s verbal claims and written records
- Lease that is not assignable without landlord consent (and landlord is uncooperative)
How Long Should Due Diligence Take?
For a business priced under $500K, 2–4 weeks is typical. For mid-market businesses ($500K–$5M), allow 4–8 weeks. For larger acquisitions, 8–16 weeks is not unusual. Never let a seller pressure you into cutting this phase short.
Conclusion
Due diligence is your last line of defence before committing your capital. Work with an experienced business attorney and CPA throughout this phase, and consider using SellAnyBiz.com’s professional due diligence service to ensure nothing is missed.
