Due Diligence Checklist for Buying a Business: Full Buyer List
Updated October 29, 2026 · 8 min read · TealBridge
Key facts
- What it is
- Verification of the seller's claims before you are bound to close
- Timing
- Typically 30 to 60 days after the LOI
- Starting point
- 3 years of tax returns, financial statements and bank statements
- Areas
- Financial, tax, customers, operations, staff, legal, lease, licenses, IT, insurance
- Who checks
- Buyer-side advisor, CPA, deal attorney, sometimes specialists
- Outcome
- Verified P&L, risk list, price and terms adjustments
A due diligence checklist for buying a business covers financial records and bank statements, tax filings, revenue and customers, operations and suppliers, employees and payroll, legal and corporate records, contracts, the lease and real estate, licenses and permits, IT and digital assets, insurance and, for E-2 buyers, visa-related items. Each item pairs a document request with what the buyer must confirm.
Use this checklist after signing a letter of intent and before you are bound to close. Not every line applies to every deal: a home services company has different priorities from an e-commerce store. The tables below show what to request and what each document should prove.
What is due diligence when buying a business?
Due diligence is the buyer’s investigation of a business before closing. It tests what the seller has said about earnings, assets, liabilities, customers, staff and legal standing. The result is either confirmation of the price and terms, a renegotiation based on evidence, additional protections in the purchase agreement, or a decision to walk away.
It typically takes 30 to 60 days after the LOI. Exclusivity in the LOI should cover this period plus time to draft the purchase agreement.
How should due diligence when buying a small business be organized?
Organize the work by area and by owner. Send the seller one document request list at the start, track what has arrived, and assign each area to the person who will review it: your advisor, CPA or attorney. Start with financials because they determine whether the deal is still worth pursuing.
| Phase | Typical focus |
|---|---|
| First 1 to 2 weeks | Financial documents, bank statements, tax returns, quick reconciliation |
| Middle weeks | Customers, operations, staff, contracts, lease, licenses |
| Final weeks | Legal searches, open issues, findings report, price and terms adjustments |
Which documents should you request on day one?
Send the seller a single written request list as soon as the LOI is signed. The first batch should let you test earnings and spot deal-breakers quickly:
- Federal and state tax returns for the last three years.
- Monthly profit and loss statements and balance sheets for the same period, plus year to date.
- Statements for every business bank account and merchant account for the same period.
- Payroll reports and a list of employees and contractors with roles and pay.
- The lease with all amendments.
- A list of licenses and permits, with copies.
- Customer revenue by customer for the last three years.
- A list of debts, liens, equipment leases and open legal matters.
Everything else can follow in later batches. If the seller cannot produce the first batch within a reasonable time, that is itself a finding.
What financial items belong on a due diligence checklist for buying a business?
| Item | What to request | What to confirm |
|---|---|---|
| Profit and loss | Monthly P&L for 3 years and year to date | Revenue and margin trends, seasonality |
| Balance sheet | Year-end and current balance sheets | Assets, liabilities, working capital |
| Bank statements | All business accounts, 3 years | Deposits support reported revenue |
| Reconciliation | Seller’s reconciliation of P&L, tax returns and deposits | Differences explained and documented |
| SDE or EBITDA adjustments | List of add-backs with evidence | Each adjustment is real and non-recurring |
| Accounts receivable | Aging report | Collectability, no unusual old balances |
| Accounts payable | Aging report | No unpaid vendors held back before sale |
| Inventory | Count and valuation method | Quantity, condition, obsolete stock |
| Debt | Loan agreements, lines of credit, leases of equipment | What must be paid off at closing |
| Capital expenditure | Equipment purchases, planned replacements | Future spending not hidden from earnings |
We rebuild the P&L from three years of bank statements because they are the hardest data to adjust. For larger deals, a quality of earnings report from a CPA firm tests adjusted earnings and working capital in more depth.
Which tax items should you check?
| Item | What to request | What to confirm |
|---|---|---|
| Income tax returns | Federal and state returns, 3 years | Match financial statements |
| Sales and use tax | Filings and payment records | No unpaid sales tax that could follow the business |
| Payroll tax | Quarterly payroll filings, W-2 and 1099 forms | Filings and deposits up to date |
| Notices | Any IRS or state notices or audits | Open issues and potential exposure |
| Entity status | Tax classification of the entity | Relevant to asset vs stock purchase |
Your CPA should review tax items. In an asset purchase, both parties generally report the allocation of the price among asset classes to the IRS on Form 8594; see asset vs stock purchase.
How do you check revenue and customers?
| Item | What to request | What to confirm |
|---|---|---|
| Customer list | Revenue by customer, 3 years | Concentration and retention |
| Contracts | Customer agreements and terms | Assignability, change-of-control clauses |
| Pricing | Price lists, recent increases | Margin sustainability |
| Pipeline | Recurring work, backlog, subscriptions | Revenue visibility after closing |
| Marketing | Channels, spend, lead sources | Cost to acquire customers |
| Reviews and reputation | Online reviews, complaints | Reputation risks |
What should you review in operations and suppliers?
| Item | What to request | What to confirm |
|---|---|---|
| Process documentation | Manuals, checklists, schedules | The business can run without the seller |
| Equipment and vehicles | List with age, condition, title | Ownership, liens, replacement needs |
| Suppliers | Main suppliers and terms | Dependence, pricing, continuity |
| Owner role | Description of the owner’s weekly tasks | What must be replaced or trained |
| Capacity | Utilization of staff and equipment | Room to grow without major investment |
What should you check about employees and payroll?
| Item | What to request | What to confirm |
|---|---|---|
| Staff list | Roles, tenure, pay, hours | Key people and payroll cost |
| Classification | Employee and contractor arrangements | Correct classification under IRS rules |
| Employment documents | Offer letters, agreements, handbook | Non-solicit, confidentiality, obligations |
| I-9 records | Form I-9 files | Employment eligibility compliance |
| Benefits and insurance | Health, retirement, workers’ compensation | Costs and liabilities that transfer |
| Disputes | Claims, complaints, wage issues | Open or likely employee claims |
Which legal and corporate records should you review?
| Item | What to request | What to confirm |
|---|---|---|
| Formation documents | Articles, operating agreement or bylaws | Who owns the company and can sign |
| Good standing | State certificate | Entity is active and compliant |
| Liens | UCC, tax and judgment lien searches | Assets free of claims at closing |
| Litigation | Seller disclosure plus court searches | Pending or threatened claims |
| Intellectual property | Trademarks, domains, content, software | Owned by the business and transferable |
| Material contracts | Vendor, franchise, service, financing agreements | Consents needed, termination rights |
Your business acquisition attorney runs the legal searches and reviews these documents.
What should you confirm about the lease and real estate?
| Item | What to request | What to confirm |
|---|---|---|
| Lease | Full lease with amendments | Remaining term, renewals, rent increases |
| Assignment | Assignment clause, landlord consent | Landlord will assign or sign a new lease |
| Estoppel | Landlord estoppel letter | No defaults or disputes |
| Zoning and use | Permitted use, certificates of occupancy | The business can operate as it does |
| Environmental | Prior use, any assessments | Contamination risk, especially for fuel, auto or industrial sites |
For sites with environmental risk, buyers often commission a Phase I environmental site assessment; the EPA describes the related “all appropriate inquiries” standard.
How do you check licenses, permits and regulation?
| Item | What to request | What to confirm |
|---|---|---|
| License list | All state, county and city licenses | Which transfer and which must be reissued |
| Professional licenses | Licenses held by individuals | Whether the business depends on one person’s license |
| Inspections | Health, fire, safety reports | Open violations or corrective actions |
| Franchise approval | Franchise agreement, transfer terms | Franchisor consent, fees, training |
Requirements vary by state and city; see our state guides.
What about IT, digital assets and insurance?
| Item | What to request | What to confirm |
|---|---|---|
| Systems | Software, subscriptions, POS, CRM | Accounts can be transferred |
| Data | Customer data and how it is stored | Lawful use, security, transferability |
| Online assets | Website, domain, phone numbers, social accounts | Owned by the business, not personally |
| Insurance | Policies and claims history | Coverage gaps, past claims |
How does the checklist change by type of business?
The areas stay the same, but the weight shifts with the business model. A few common examples:
| Business type | Where to look harder |
|---|---|
| Cleaning and home services | Customer contracts and recurring revenue, staff classification, owner’s role in sales |
| Construction and renovation | Contractor licenses, backlog and margins by job, warranty claims, insurance |
| Restaurants and food service | Health inspections, lease terms, cash revenue versus deposits, liquor license transfer |
| E-commerce | Platform and ad account ownership, traffic sources, refund rates, inventory and supplier terms |
| Franchise resale | Franchisor approval, transfer fees, remaining term, remodel obligations, Item 19 comparison |
| Gas stations and auto | Environmental history, fuel supply agreements, equipment condition, permits |
Our industry guides cover industry-specific checks in more depth.
What should E-2 buyers add to the checklist?
| Item | What to confirm |
|---|---|
| Ownership and control | You will own at least 50% or have operational control |
| Investment size | Substantial in proportion to the total cost of the business |
| Funds at risk | Funds committed, for example through visa-contingent escrow |
| Financing | Loans secured by the business, or seller financing secured by it, generally not counted |
| Marginality | Business generates more than a minimal living or has significant economic impact |
| Source of funds | Lawful source documented |
| Handoff | Documents your immigration attorney will need |
These items follow 9 FAM 402.9 and must be confirmed by your immigration attorney. See businesses that fit E-2 requirements.
What happens after due diligence?
The findings become a short report: verified earnings, a list of risks ranked by impact, and proposed responses. Some issues lead to a price change, others to escrow, holdbacks, specific indemnities or closing conditions. If the business no longer fits, you walk away before you are bound. The warning signs worth stopping for are listed in red flags when buying a business.
Next step
TealBridge runs buyer-side due diligence: we rebuild the P&L from three years of bank statements, prepare a verified P&L, balance sheet and cash flow, a valuation opinion and a business risk review, and coordinate legal review with qualified counsel. Contact us when you have signed or are about to sign an LOI.
This guide is general information, not legal, tax or investment advice. For your situation, consult a licensed attorney and a CPA.
Frequently asked questions
Due diligence is the buyer's investigation of a business after the letter of intent and before closing. It verifies the financials, legal standing, operations, staff, contracts and liabilities the seller has described, so the buyer can confirm the price, negotiate protections or walk away.
Typically 30 to 60 days after the LOI is signed. It runs faster when the seller has clean records and delivers documents on time, and slower when bookkeeping is weak, there are many contracts or licenses, or third-party consents are needed.
Start with three years of tax returns, financial statements and bank statements, plus the current year to date. Add payroll reports, the lease, key contracts and a list of licenses. These show quickly whether the reported earnings hold up.
Usually a team: a buyer-side advisor for financial and business review, a CPA for tax and accounting, and a deal attorney for legal review. Larger or specialized deals may add a quality of earnings provider, an environmental consultant or an IT reviewer.
It is not advisable. Small businesses often have the weakest records and the most owner dependence, so verification matters more, not less. The scope can be proportionate to the deal, but financial, lease, license and liability checks should always be done.
Sources
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