The due diligence checklist. What to verify before you buy.
Due diligence is the window between your accepted offer and your closing, and it exists for one reason: every claim in the listing gets proven there or gets caught there. This is the checklist. The documents to demand, the order to work them, and the honest test each one has to pass.
Free 30 minutes. Bring what the seller sent and leave knowing what is still missing. Reviewed against the July 2026 rules.
First hour vs. the six weeks that decide it
There are two different checklist moments in buying a business, and mixing them up wastes both. The first hour with a listing gets its own two-page checklist, the free deal-read checklist: what to request, what the numbers should look like on first pass, and the silences worth noticing before you spend a weekend falling in love with a business. Download it, print it, use it on every listing.
This page is the second moment. Your offer is accepted, the letter of intent is signed, and you now have weeks, not months, to verify everything you were told. From here forward the seller's claims stop being reading material and start being either documents in your hands or problems on your list. Work top to bottom, and put every request in writing with a date on it.
Send the full request on day one
Financial records. Three years of business tax returns, three years of profit and loss statements and balance sheets, and the current year to date. Then the schedule that connects them: every addback the seller claims, line by line, with the paperwork behind it. The tax returns are the anchor; a business earns what its returns can support, not what a spreadsheet remembers.
Cash reality. Twelve months of business bank statements, accounts receivable aging, accounts payable aging. Statements catch what summaries smooth over: the seasonal trough, the customer who pays ninety days late, the deposits that do not match reported revenue in either direction.
Revenue quality. Revenue by customer for three years. You are looking for concentration, and you want the number, not an assurance. A business where one customer is a third of revenue is a different purchase from one where the top customer is six percent, whatever the totals say.
Obligations that transfer. The premises lease and every equipment lease, supplier and customer contracts, loan and lien records, warranty obligations, and the license and permit list with expiration dates. Read the lease before you price the deal: assignment terms, remaining term, and a coming rent reset can move the numbers more than most addbacks.
People and exposure. Payroll records and roles, who is family, who is staying, any employment agreements, and a written disclosure of litigation, disputes, and tax notices. The org chart question is simple: whose departure would take revenue with them, and is one of those people the seller?
The five checks that catch bad deals
1. Rebuild the earnings yourself. Take the seller's SDE apart and put it back together from the tax returns, addback by addback, running each one through the honest test: would the next owner really not pay this? The full method is in the SDE guide. A number nobody has independently rebuilt is a pitch, not a fact.
2. Tie the story to the bank statements. Reported revenue should show up as deposits; reported margins should leave cash behind. When twelve months of statements disagree with the profit and loss statement, the statements are telling the truth.
3. Price the concentration. Get revenue by customer and by channel. Then ask what happens to the loan payment if the biggest one leaves the month after closing, because the bank will ask exactly that.
4. Count the working capital. Closing is not the finish line of spending; the business needs fuel in the tank on day one. Pin down in writing what stays with the sale: inventory, deposits, work in progress, receivables. The cash-needed guide covers the working-capital trap that catches first-time buyers.
5. Run the coverage math on your actual deal. Verified earnings still have to carry the loan you are actually signing. That test is DSCR: lenders want 1.25x or better, the SBA minimum is 1.15x, and the DSCR guide shows the four levers when coverage runs thin. The free Stack Check calculator runs the split and the coverage grade on your numbers in about a minute.
Who does what, and on what clock
You do not run diligence alone, and you should not. Your CPA rebuilds and stress-tests the numbers. Your attorney reads the contracts, the lease, and the purchase agreement, and checks that what you think you are buying is what the documents transfer. You own the operating questions nobody else can answer: would you keep these customers, these people, this landlord, this workload. ClarIQ is not a law firm or a CPA firm; we sit on the numbers side, and a written deal read exists for exactly this window.
The clock: an SBA-financed purchase realistically runs 60 to 90 days from accepted offer to funding, and your lender runs their own diligence in parallel with yours. Send the full document request the day the offer is accepted, chase it weekly in writing, and hold a standing rule about surprises: anything material that was not disclosed goes on the list that decides price, structure, or walking. That list has a name in our practice, the deal-breaker list, and the buyers who write one before falling in love with a deal are the ones who get to stay unsentimental when it matters.
How long does due diligence take when buying a business?
What documents should I ask for in due diligence?
Do I need a quality of earnings report?
What happens if due diligence finds a problem?
Working a live deal through this list?
Thirty minutes, free. Bring what the seller has sent and we will tell you what is still missing, which numbers deserve pressure, and whether the deal math holds before you spend more on the professionals.
Talk through your dealFirst hour with a listing instead? Download the free deal-read checklist.
Deal turning serious? Get the 48-hour deal read.
Want the numbers checked first? Try the free Stack Check calculator.
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