A practical small-business due diligence checklist

Verify the financial story

Collect several years of profit-and-loss statements, balance sheets, tax returns, bank records, accounts receivable and payable, payroll, debt schedules, and capital expenditures. Reconcile revenue with source records rather than relying on a seller-prepared summary.

Normalize owner compensation and claimed add-backs carefully. Identify expenses that will continue after closing, working capital required to operate, and investments postponed by the current owner.

• Compare monthly results to expose seasonality and recent changes.
• Review aged receivables and customer credits.
• Confirm inventory quantity, age, ownership, and valuation.

Test customers, revenue, and market position

Measure concentration across customers, products, channels, and geographies. Review contracts, renewal terms, churn, refunds, pipeline quality, pricing history, and customer-acquisition economics.

Where appropriate and permitted, conduct structured customer calls late in diligence. Understand why customers stay, what alternatives they consider, and whether their loyalty belongs to the company or personally to the seller.

Map operations and people

Document how leads become customers, how work is delivered, which systems contain essential information, and which approvals depend on the owner. Review employee and contractor agreements, compensation, tenure, performance issues, and retention risks.

Inspect supplier terms, equipment, leases, licenses, insurance, cybersecurity, backups, intellectual property, and critical third-party platforms. A profitable business can still require immediate investment to remain operational.

Turn findings into decisions and deal terms

Maintain a diligence log that connects every request to a risk or assumption in the acquisition model. Classify findings as resolved, accepted, requiring a price adjustment, requiring a contractual protection, or serious enough to end the process.

Qualified legal, accounting, tax, technology, and industry advisors can help evaluate specialist issues. Diligence is complete when the buyer understands the important risks well enough to price, structure, accept, or reject them—not when every possible document has been collected.