The Ultimate Small Business Due Diligence Checklist

The Ultimate Small Business Due Diligence Checklist

You've poured your heart and soul into your small business. Then, you get a big opportunity - someone's interested in buying it. They hand you a big checklist to look over. How can you make sure the handover goes smoothly? The key is knowing what to expect and giving them what they need. Think of it as a chance to prove your business's true worth.

Getting the buyer's due diligence checklist can be a difficult moment. Some business owners think it's just a hurdle to overcome. Others compare it to a very unpleasant medical procedure. But you can make things easier. One way is to be ready before they even ask. So, get your business documents up to date and organized now.

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The checklist usually has two types of requests: information about the business and the documents to back it up. For the info part, they might ask things like how you'd boost sales or who could take on bigger roles. The documents they'll want to see could cover many years of finances, among other things. You might also need to share business policies and any major contracts.

Key Takeaways

➡️The small business due diligence period can last 30 to 90 days, often around 45 to 60 days.
➡️Buyers usually ask for financial records and tax info going back three to five years.
➡️Having due diligence info ready early can really help, especially if you're working with brokers or advisors.
➡️Operational due diligence looks at how everything is run and what you need to keep it going.
➡️Legal due diligence checks for any past or potential legal problems your business might have.


Understanding the Due Diligence Process

When a business is for sale, the buyer will check everything in a process called due diligence. The buyer wants to be sure about the business before buying it. They can back out if they're not happy.

The Letter of Intent (LOI) outlines the method and timing for the buyer's due diligence process. Let me illustrate this with two examples to clarify.

When Does the Due Diligence Period Start?

EXAMPLE #1: Before the sale happens, the buyer needs to check a few things. They look at the money, how the business works, and if it's legally sound. They'll also want a good loan deal and a final contract ("Definitive Agreements") signed by a certain date.

How Long Does the Due Diligence Period Last?

EXAMPLE #2: The buyer will look closely at different parts of the business. They'll check money, operations, industry standings, and many more things. They might talk to the business's top people and top customers. After signing a letter saying they'll only talk to this business for a set time, the sale could happen in approximately [##] days.

In general, checking a small business before buying it takes between 30 and 90 days. The most common time is 45 to 60 days. You can make things quicker by preparing in advance. That way, when buyers ask for information, you're ready.

Many things happen at the same time during this period. You're talking about the sale and checking all the details. The smoother you make this process, the quicker it could all happen. If it takes too long, both parties might lose interest. This is called "deal fatigue." It's a real problem that can stop the deal. Remember, in business sales, fast due diligence helps buy faster.


What Will Buyers Ask for During Due Diligence?

Buyers will seek everything they need to feel secure about the purchase. They investigate the business's good and bad points, make sure it's worth the price, and secure money for the purchase. Their questions usually fit into three categories:

➡️Financial aspects, to check the money is right.
➡️Operations, for gaining insight into the functioning of the business.
➡️Legal, to confirm there are no hidden legal problems.


It's normal to feel overwhelmed by all the questions. But not all will apply to your sale. Every buyer might use a big list of questions. It's okay to say if some questions don't fit your situation. Just do your best to share accurate information.

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Financial Due Diligence Checklist

The buyer will ask for a lot of financial info from the seller. This info should cover many things.

Annual and Quarterly Financial Information

The buyer will want to see income, balance, and cash flow statements for three years. They'll also ask for recent statements, like this year and the last 12 months.

They need to know detailed sales and profits. This includes info on products, customers, and where sales come from. The buyer also wants to see the company's tax returns and bank statements from the past three years.

Financial Projections

Buyers ask for financial guesses for the coming year. These should cover what will make the company grow and its pricing plans. They also want to know about any big money spending or changes in how the company uses its money.

Budgeting Process

The buyer will investigate how the company makes its budgets. They’ll want to know if the past predictions were close to what happened. If things didn't go as planned, they'll ask why.

Capital Structure

Details on who owns the company and any debt are also needed. They want a list of owners and how much of the company they own.

They'll also need to see if there's debt and what kind. This includes bank loans and their conditions.

Other Financial Information

Buyers also ask for details on money owed and money the company owes others. They'll want to know the company's rules for counting money, like when they say they’ve made a sale.

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Operational Due Diligence Checklist


Products and Services Due Diligence

The buyer will want details on what the company sells. This includes each item and how it's priced. They also need to know about sales forecasts, the competition, and where products are sold.

Customer Due Diligence

The buyer needs info on who buys from the company. They want to see a list of the top clients over the last few years. This includes big partnerships and money made from each customer.

Competitive Due Diligence

The buyer needs to know about the market rivals. They'll ask for a rundown on the key competitors. It's crucial for them to obtain a comprehensive understanding of the landscape.

SBA Business Plan

Crafting a solid SBA business plan is essential for securing an SBA loan. Our expert writers will help you. They will make sure your plan fits what the SBA wants. Your plan will show how strong your business is. This makes it easier to get your SBA loan approved. Afterward, you can access the funds necessary for expansion.

Detailed financial plans are the heart of a great SBA business plan template. We'll make monthly and yearly forecasts with you. These plans need to explain your financial thinking well. They should consider things like how the seasons and market changes might affect your business.

Your plan should also talk about your business in detail. Include your mission, who leads your business, what you sell, your customers, your competition, and how much money you need. Describe how you will get customers and sell your products. Say how much you'll spend on marketing and what you expect to earn back.

Lastly, we'll help you collect any needed paperwork. This could be things like business licenses, tax documents, and financial statements. Having a complete and well-organized plan shows SBA lenders your business is a solid bet.

Need help with your SBA business plans? Whether you're starting or already up and running, we're here for you. Let's get you that loan and grow your business. Contact us to get started.

Legal and Compliance Due Diligence

Organizational and Good Standing Documents

The buyer asks for key documents during due diligence. They want to see the company's Articles of Incorporation and Bylaws. These include any changes made over time. The buyer will look at the company's minute book too. It tells them what was decided in meetings. They will also want to see the company's structure, who the owners are, and papers on agreements about stock options.

To check the company's status, the buyer needs certain papers. They ask for a Certificate of Good Standing from where the company is registered. Also, they need reports showing the company is active in the last three years. Information on where the company can operate is a must. This includes each state's reports and papers for any different names the company uses.

Intellectual Property Documentation

Keeping intellectual property (IP) safe is very important. The buyer wants to see the company's patents and any pending ones. This helps them know the value of the company's inventions.

Real Estate Documentation

Details on the company's land and buildings are important too. The buyer will look at any real estate contracts, property deeds, and more. They want to understand the company's locations and any legal issues with its properties.


When buying a small business, doing your homework is very important. Make sure to check everything off on your list and get all the documents you need. This way, you can confirm what the seller says and avoid any big problems. Your hard work at the start can lead to a successful buy and a prosperous future.

The Small Business Administration (SBA) is a great help for those starting or buying a business. They offer advice on making a strong business plan. A good plan is usually 15 to 30 pages long and includes things like a summary, business info, market study, and financial outlook. Using the SBA business plan's tips can boost your chances of loan approval, helping you in getting the business.


What is the purpose of due diligence when buying a small business?

Diligent checks help the buyer. They confirm the seller's info. This method also aims to grasp the business's risks and rewards. It justifies the cost and helps in getting loans.

What information will the buyer request during the due diligence process?

Buyers ask for financial records, how the business is run, and its legal papers. This is to check if what the seller claims is true.

What is the usual duration of the due diligence period?

The due diligence lasts from 30 to 90 days. Most often, it takes about a month to two months.

What can the seller do to expedite the due diligence process?

To speed things up, sellers should prepare early. They can collect all documents and info the buyer might want before it's asked for.

What are the consequences of a prolonged due diligence process?

Stretching out the process makes both parties tired of the deal. It might even cause the deal to fail. So, it's wise to keep things moving swiftly.

Do buyers request all the items on a due diligence checklist?

Not every checklist item fits every sale. Sellers should give what they can. If something doesn't apply, they should say so.