Buying a small business isn’t like picking out a new car. You’re not just kicking the tires. You’re lifting the hood, checking the paperwork, confirming the mileage and bringing in a mechanic. That process, called due diligence, is your chance to verify everything the seller has told you and uncover anything they haven’t.
This article gives you a practical walkthrough of what due diligence really involves. It’s not just theory. These are the steps buyers follow once the deal is moving forward. Think of it as a real-world checklist to keep you focused.
1. What Is Due Diligence?
Due diligence is the buyer’s chance to inspect every part of the business before closing the sale. It’s when you confirm financials, study operations, examine legal documents and evaluate risk.
The process typically starts after a letter of intent or purchase agreement is signed. From that point, buyers usually have 10 to 30 days to complete their review. If anything raises concern, this is the time to ask questions, request clarification, or renegotiate.
Looking for a deeper breakdown of what this period involves? Read our post on Due Diligence – Digging Deep for more context on how to prepare.
2. Who’s Involved in Due Diligence
Even though the buyer leads the process, it’s not a solo job. A good due diligence effort includes the right support team. Here’s who you’ll typically need:
- Business Broker — helps gather documents, coordinate conversations and keep momentum steady. If you need a business broker, we would encourage you to find a broker near you using our Broker Directory.Â
- Accountant — reviews financials, tax returns and cash flow trends. They can spot inconsistencies and give you a clearer financial picture.
- Attorney — handles contracts, lease terms, licenses and any legal risks that could affect the deal.
This team helps you make sense of the details, protects your interests and can often spot issues you might miss on your own.
3. Due Diligence Checklist: What to Review and When
This is where the work gets hands-on. Use the list below to structure your review. Depending on the size and type of business, some items may not apply. But most buyers will cover all or most of these categories.
Financial Records
- Last 3 years of profit and loss statements
- Tax returns for the same years
- Balance sheets and bank statements
- Sales reports and key revenue breakdowns
- Accounts receivable and payable
- Outstanding debts or liabilities
Tip: Ask the seller to walk you through each set of numbers. Don’t just review reports in isolation.
Legal and Operational
- Business licenses and registrations
- Contracts with customers, suppliers, or partners
- Leases for real estate or equipment
- Employment agreements and payroll records
- Intellectual property rights or patents (if applicable)
Check that everything is current, transferable and enforceable. Your attorney can flag any terms that need closer attention.
Inventory and Equipment
- Detailed inventory count, including age and condition
- Equipment list, including ownership status and maintenance records
Some deals include all assets. Others exclude certain items. Clarify what’s being transferred and get it in writing.
Customer and Vendor Information
- List of top customers by revenue
- Key vendor relationships, including contracts and terms
- Customer retention history and churn rates
Look for concentration risk. If most revenue comes from one or two customers, that’s something to discuss.
Marketing and Digital Assets
- Website performance and traffic data
- Social media accounts and engagement
- Email lists or CRM data
- Marketing plans and campaign history
These assets can be a big part of value in a service or retail business. Make sure you know what you’re getting.
For a full checklist of documents and records to request, see Due Diligence – Part B.
4. Site Visit and Owner Conversations
Once you’ve reviewed the numbers and documents, it’s time to get in the room. A site visit helps confirm what you’ve seen on paper.
- Tour the location during normal business hours
- Observe employee activity, workflow and customer interaction
- Check equipment condition firsthand
- Ask the owner operational questions in real time
This is also your chance to gauge the owner’s transparency. A cooperative seller is a good sign. Avoid situations where access feels limited or overly filtered.
Final Takeaway: Use This Time Wisely
Due diligence isn’t just a formality. It’s your best opportunity to make sure the business is worth buying. Use this period to dig into the details, confirm the numbers and ask the questions that matter. If something doesn’t add up, you’ll want to know before you close.
Don’t go it alone. A professional business broker can help you navigate the process, connect you with seller documents and coordinate your review timeline. You’ll also want to involve an accountant and attorney to make sure everything checks out.
Still looking for the right opportunity? See businesses for sale in your area and use your checklist to evaluate the options that fit your goals.
The right deal won’t just look good on paper. It will stand up to scrutiny and give you the foundation you need to succeed.
