The Due Diligence Checklist: What Buyers Expect When Acquiring Your Business

So, you’ve decided to sell your business. Congratulations! You’ve spent years building it from the ground up, carefully crafting your brand, streamlining your operations, and—let’s be honest—cutting a few corners here and there to “optimize” efficiency. And now, a buyer has come knocking, ready to take over and (hopefully) give you a big, fat payday.

But before you start mentally spending your acquisition windfall on beachfront property, we need to talk about due diligence—the deep dive where buyers will scrutinize every aspect of your business. This isn’t just a quick once-over of your balance sheets. No, they’re bringing in the metaphorical proctoscope, checking for financial inconsistencies, legal minefields, operational inefficiencies, and any skeletons lurking in your corporate closet.

Financials: No, Buyers Won’t Take Your Word for It

Buyers want to know that your business is actually making money—not just on paper, but in reality. That means financial transparency is non-negotiable. Hope you didn’t “round up” those revenue figures.

Profit & Loss Statements (P&L): The Truth Serum of Business

Your P&L isn’t just for show. Buyers want to see at least three years of financials, preferably audited. If your margins fluctuate wildly or expenses mysteriously spike in Q4 every year, expect some hard questions.

Common Red Flags:

• Unusual revenue spikes that just so happen to align with valuation periods
• Expenses hidden under vague categories like “miscellaneous” (which is usually code for we have no idea)
• Negative cash flow disguised with creative bookkeeping

Tax Returns: The Government Knows, and So Will Your Buyer

Buyers will review your tax returns to verify whether your reported profits are real or just a work of fiction. If your accountant has been particularly “creative” with deductions, now’s the time to clean up the mess.

Warning Signs for Buyers:

• Significant discrepancies between reported income and actual revenue
• Ongoing tax disputes (because nothing says “great investment” like IRS audits)
• Heavy reliance on tax loopholes that may not survive regulatory changes

Debt & Liabilities: The Ghosts of Bad Decisions Past

No buyer wants to discover that your business is a financial black hole. Be upfront about outstanding debts, legal obligations, and any pending lawsuits (yes, all of them).

Legal & Compliance: Did You Really Read the Fine Print?

Your contracts and legal agreements will be scrutinized harder than a celebrity prenup. Buyers want airtight documentation, not handshake deals and we’ll-figure-it-out-later clauses.

Contracts: Are They Actually Legally Binding?

Buyers want to see that you have solid, enforceable contracts with clients, vendors, and employees. If half your agreements are verbal or written on the back of cocktail napkins, now’s the time to formalize things.

Common Buyer Concerns:

• Auto-renewing contracts with unfavorable terms
• Clients with easy exit clauses that could tank revenue overnight
• Non-compete agreements that wouldn’t hold up in court

Pending Litigation: If It’s in the Mail, They’ll Find Out

If you’re dealing with ongoing lawsuits or regulatory issues, disclose them upfront. Nothing kills a deal faster than a buyer discovering legal troubles after they’ve signed on the dotted line.

Operations: Is Your Business a Well-Oiled Machine or a Dumpster Fire?

Sure, your company works, but does it actually run efficiently? Buyers will want to see that you have scalable processes in place—not that everything collapses if Bob from accounting takes a sick day.

Supply Chain & Vendor Relationships: Are You a Hot Potato?

Buyers don’t just look at your suppliers; they analyze the stability of your entire supply chain. If your key vendor is one bad quarter away from bankruptcy, that’s a problem.

Business Processes: Does Your Company Rely on Excel and Hope?

Documented processes are critical. If your entire operational model lives in the head of one person (who happens to be retiring the second this deal closes), expect some skepticism.

Customers & Revenue: Are They Loyal or Just Passing Through?

If 80% of your revenue comes from a single client who could walk away tomorrow, your business isn’t a gold mine—it’s a hostage situation. Buyers want to know how diversified and stable your revenue streams are.

Revenue Concentration: The Risk of Putting All Your Eggs in One Basket

A well-balanced customer portfolio shows that your business isn’t overly reliant on any single client. If you lose one and your company implodes, that’s not a business—it’s a gamble.

Churn Rate & Customer Lifetime Value (CLV): Are People Sticking Around?

• If customers are leaving faster than they arrive, buyers will worry.
• If you’re constantly acquiring new customers but none of them stick, that’s a problem.
• If your customer acquisition costs exceed their lifetime value, your entire business model is in question.

Technology & Intellectual Property: Does Your Business Actually Own What It Sells?

In the modern business landscape, buyers want to know what technology, data, and intellectual property (IP) your company owns—outright, not just “borrows.”

Trademarks, Patents & Copyrights: Who Actually Owns Your IP?

If your IP is tied up in questionable licensing deals or vague ownership agreements, that’s a big red flag. Buyers want clear, uncontested ownership of all proprietary assets.

Tech Stack & Cybersecurity: Are You Running a Digital Fortress or a House of Cards?

• Outdated software and security vulnerabilities are huge liabilities.
• If your system is one bad phishing email away from catastrophe, expect a lower valuation—or no deal at all.

Compliance with data privacy laws (GDPR, CCPA) is non-negotiable. Buyers will not inherit your legal mess.