How To Conduct Due Diligence On A Business

First, it is important to understand that the checklist below is an all encompassing list of items you might ask from a seller during due-diligence.  Many items on this list may not be applicable for the type of business you are buying.

Additionally, while a buyer would hope to find a business whose books are all buttoned-up, neat, and presentable, there simply are not many small to medium-sized business owners that keep impeccable financial records.  In fact, it is likely that once you become a business owner and get caught up in the daily operation of your business, keeping impeccable financial records may become a secondary priority for you as well.  With that in mind, getting everything you request may prove to be too difficult for a seller, if not even impossible.  Use the list below as a guide, and your Biz-Sell Advisor can help make sure you navigate your business purchase safely.

Disclaimer:  It is always best to seek the help of an attorney or accountant when necessary. or Business Sellers, Inc. cannot or will not provide you with such advice.

The Due-Diligence Checklist

  • Lease or Deed for premises of the business
  • Corporate tax returns for most recent three (3) years
  • State sales tax returns for most recent three (3) years
  • Payroll tax statements and related schedules for the most recent 12-month period
  • W-2’s for all employees – most recent
  • Income statements for most recent three (3) years
  • General ledger for most recent 12 month period
  • Bank Statements for all business bank accounts for most recent 12-month period
  • Cash disbursement journals/check registers for the past three years
  • Description of significant changes in accounting methods over last three (3) years
  • Explanations of undetermined line item categories on Income statements
  • List of major capital equipment purchases during the last three (3) years
  • Schedule of debt and contingent liabilities
  • Current inventory schedule (if applicable)
  • Detailed list of all equipment required to operate the business
  • List of all current accounts receivables
  • List of all current accounts payable
  • Schedule of all customers with billing (most recent 12 months) and credit terms (if any)
  • List of major customers lost over most recent two (2) year period
  • Copies of any service or supplier agreements with customers
  • Description of the companies customer credit policies
  • Order a Dun & Bradstreet report (if applicable) (buyer’s cost)
  • Description of any litigation the business has been involved in during the last five (5) years
  • Gross margins analysis by product category
  • List of all owners/shareholders in the business
  • List Names & responsibilities of any family members employed or with relationship to the business
  • List Names, job descriptions, & compensation of all current employees
  • Schedule of benefits provided to employees
  • List of the businesses registered and active Fictitious Business Names
  • List all trademarks and trade names owned by the business
  • Description of methods used to protect trade secrets and intellectual property
  • Description of worker’s compensation claim history
  • All current UCC filings
  • List of all equipment leases
  • List and copies of all governmental licenses or permits required to operate the business
  • Descriptions of any hazardous substances used to run the business & disposal methods
  • Description of any known plans by city or landlord that may affect operation of the business
  • Verification of “good standing” with local Food Protection authorities (if applicable)

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