Due Diligence · 9 min read
Due Diligence Checklist Before Buying a Business
Due diligence is the structured verification of everything a seller has told you. This checklist covers what to examine, what to request in writing and how findings should change your price or your protections before signing.
Why it matters
What due diligence protects you from
Most acquisition losses are not caused by paying a slightly high multiple. They are caused by liabilities that were never disclosed, revenue that could not be repeated, or a business that only worked because the previous owner personally held the customer relationships. Diligence exists to find those before money moves.
A buyer who completes diligence properly gains three things: a corrected view of sustainable earnings, evidence to renegotiate price or structure, and a documented basis for indemnities and warranties in the agreement. Read our guide to common diligence red flags for what those findings typically look like in practice.
Financial
Financial due diligence checklist
- Three years of audited financial statements plus current management accounts.
- Monthly revenue by customer, product and channel to test seasonality and concentration.
- Reconciliation of reported revenue to bank receipts and GST or VAT filings.
- Normalised EBITDA after removing one-off income, promoter costs and personal expenses.
- Working capital trend, debtor ageing and provisioning for irrecoverable receivables.
- Net debt schedule including loans, leases, guarantees and director borrowings.
- Capital expenditure history and the spend required to maintain current output.
- Cash conversion: how much reported profit actually reached the bank.
Tax and legal
Tax, statutory and legal checks
- Income tax, GST or VAT returns, assessments, notices and pending disputes.
- TDS, PF, ESI and other statutory dues, including any arrears or penalties.
- Incorporation records, share register, cap table and historical share transfers.
- Board and shareholder resolutions relevant to the transaction.
- Customer, supplier, distributor and lease agreements, with change-of-control clauses.
- Litigation, arbitration, regulatory proceedings and notices received.
- Intellectual property ownership: trademarks, domains, code and brand assets.
- Licences, permits and registrations required to keep operating after transfer.
Change-of-control clauses decide whether you buy a business or a shell
Commercial and operational
Commercial, operational and people checks
Customer quality
Retention, churn, contract length and the share of revenue held by the top five customers. Concentration is the single most common reason a multiple is reduced.
Pipeline and pricing
Whether forecast growth is contracted, quoted or aspirational, and whether current pricing has been tested against competitors.
Owner dependence
Which relationships, approvals and technical knowledge sit only with the promoter, and what transition support is realistically available.
Team and payroll
Key-person risk, employment terms, notice periods, incentive schemes and any undocumented arrangements.
Systems and data
Whether financial and operating systems produce reliable numbers, plus data protection, licensing and cybersecurity exposure.
Assets and premises
Condition and ownership of plant, equipment, inventory and property, and whether leases transfer on acceptable terms.
Sequence
How diligence fits alongside valuation
Valuation sets the opening price. Diligence tests whether that price survives evidence. Running them in the right order saves both time and negotiating position.
- Agree an indicative range using normalised earnings and sector comparables.
- Sign an NDA and a term sheet that states the price basis and diligence period.
- Run financial, tax and legal diligence in parallel to compress the timeline.
- Quantify every finding as a price adjustment, an indemnity or a walk-away point.
- Re-run the valuation on corrected numbers before signing binding documents.
FAQ
Due diligence questions buyers ask
How long does due diligence take when buying a company?+
A focused review of a small owner-operated business typically runs two to three weeks. A full financial, tax, legal and commercial review of a mid-sized company usually takes four to eight weeks, depending on how quickly the seller provides documents.
Who pays for due diligence?+
The buyer normally commissions and pays for buy-side diligence. Sellers increasingly commission their own vendor diligence before going to market to prevent surprises from reducing the price later.
Can I skip due diligence if the seller shares audited accounts?+
Audited accounts confirm that statements were prepared to a standard. They do not confirm customer concentration, contract transferability, owner dependence, pending disputes or whether earnings are repeatable after you take over.
What happens if diligence finds a problem?+
Findings are usually resolved through a price reduction, an escrow or holdback, a specific indemnity, a condition precedent to closing, or in serious cases withdrawal from the transaction.
Verify the business before you sign, not after.
Tell us the target, the stage and your timeline, and we will scope the right level of diligence.