Diligence is the period between the letter of intent and closing when the buyer verifies what the seller has said. It runs alongside the lender's process and the closing paperwork, and it is the last point at which walking away costs only time.
The list below is organised the way the buyer track covers it. Each item says what to ask for and why, and who on the buyer's side usually does the checking. Set the conditions under which you would walk before you start, and write them down.
Signed-in buyers can track each item for one business from its listing: requested, received, cleared or flagged, who is on it, and what came back.
7.1Who you hire, and when
The people on your side. Hire them before the letter of intent is signed, not after, and tell each one what the others are doing.
An accountant who has done small-business purchases
Ask: Whether they have worked a purchase this size, and what they would look at first.
Why: A general bookkeeper will check the arithmetic. You need someone who knows where sellers put things.
Who: You
An attorney who has closed asset sales
Ask: Whether they have papered a purchase agreement in this state, and how they charge.
Why: The purchase agreement, the lease assignment and the seller note all need someone who has seen them go wrong.
Who: You
The lender, early
Ask: What the bank needs from you and from the seller, and when.
Why: The lender's list runs in parallel with yours, and a gap on their side stops the closing.
Who: You
An insurance broker
Ask: What the business carries today and what you will be required to carry.
Why: Coverage gaps surface at closing, and the bank will not fund without them closed.
Who: You
7.2Checking the money
The numbers the price was built on, verified against records the seller did not prepare for the sale.
Bank statements against the profit and loss, month by month
Ask: Twelve to thirty-six months of bank statements, all accounts.
Why: Revenue that appears on the statements and not in the bank is not revenue.
Who: Accountant
Tax returns reconciled to the statements
Ask: Three years of business returns, and a reconciliation of the differences.
Why: The return is what the lender believes. A gap nobody can explain will stop the loan.
Who: Accountant
Every add-back, documented
Ask: A receipt, a payroll record or a contract for each item on the add-back schedule.
Why: An add-back without a document is not earnings, and the price was built on earnings.
Who: Accountant
Accounts receivable and payable, aged
Ask: An aging report as of the most recent month, and again at closing.
Why: It shows what is overdue, who pays slowly and what you will inherit on the day.
Who: Accountant
Seasonality and the trend
Ask: Monthly figures for three years, side by side.
Why: A strong annual figure can hide a weak second half.
Who: Accountant
7.3Quality of earnings
A deeper look than the books, by someone independent of both sides.
Whether a quality of earnings review is required
Ask: The lender, whether the deal size or structure requires one.
Why: Some lenders require it above a threshold, and the timeline needs to allow for it.
Who: Lender
Scope and cost of the review
Ask: A written scope and a fixed fee from the provider.
Why: A review can be a week or a month, and the difference is the scope.
Who: You
Recurring versus one-time revenue
Ask: A breakdown of revenue by customer type and by contract versus job-by-job.
Why: Recurring revenue is what a buyer is paying a multiple for. One-time revenue is not.
Who: Accountant
7.4Licenses, permits and bonding
Everything the business needs permission to do, and whether that permission moves with it.
Every license and permit the business operates under
Ask: A list, with the holder's name, the issuing body and the expiry.
Why: A license in the owner's personal name does not transfer. You would have to earn it.
Who: Attorney
What transfers, and what has to be reapplied for
Ask: The issuing body's transfer rules for each one.
Why: Some transfers take longer than the closing timeline allows.
Who: Attorney
Bonding and its conditions
Ask: Current bonds, the surety, and what a change of ownership does to them.
Why: Bonded work stops if the bond lapses at closing.
Who: Insurance broker
Open violations, inspections and compliance history
Ask: Any notices, citations or inspection reports in the last three years.
Why: An open violation follows the business, and its cost is yours after closing.
Who: Attorney
7.5The people
The staff hold the customer relationships. This is the part of diligence most often skipped and most often regretted.
Roster with role, tenure, pay and classification
Ask: A list without names if the seller prefers, with start dates and how each person is paid.
Why: It tells you who holds the place together, what they cost and whether anyone is misclassified.
Who: Accountant
Payroll records against the roster
Ask: Payroll reports for the last year.
Why: Overtime, bonuses and off-the-books arrangements show up here, not on the roster.
Who: Accountant
Contractors who might be employees
Ask: Every contractor agreement, and what each person actually does.
Why: A crew of contractors who are really employees is a liability you would inherit.
Who: Attorney
Employment agreements, non-competes and key-person risk
Ask: Any written agreements, and a candid word on who might leave.
Why: The person who quotes the work or holds the accounts is the business. Know before closing.
Who: You
Benefits, accrued leave and anything owed
Ask: Benefit plans, accrued vacation and any promises made.
Why: Accrued obligations transfer with the people, whether or not they are on the balance sheet.
Who: Accountant
7.6Leases, equipment and the building
Where the business lives and what it works with.
The lease, and the landlord's position on assignment
Ask: The full lease with amendments, and a conversation with the landlord.
Why: A landlord who will not assign, or will only assign on worse terms, changes the deal.
Who: Attorney
Equipment and vehicle list with age, condition and title
Ask: The list, maintenance records, and proof the business owns what it uses.
Why: Equipment on a personal title or under a lease is not part of what you are buying.
Who: You
Liens and financing on equipment
Ask: A search for liens against the business's assets.
Why: A lender's lien on the trucks survives the sale unless it is paid off at closing.
Who: Attorney
Condition of the premises and any deferred maintenance
Ask: A walk-through with someone who knows buildings, and any inspection reports.
Why: The roof, the HVAC and the parking lot are costs a listing does not mention.
Who: You
If the building comes with it
Ask: An appraisal, an environmental report and the title.
Why: Real estate has its own diligence and its own loan, and both take time.
Who: Lender
7.7Customers
Whether the revenue stays when the owner goes.
Revenue by customer, three years
Ask: A list by share of revenue, without names if needed.
Why: Concentration is the single biggest risk to the earnings you are paying for.
Who: Accountant
Contracts and their change-of-control terms
Ask: Every customer contract, and whether it survives a change of owner.
Why: A contract that terminates on sale is not recurring revenue.
Who: Attorney
Customer relationships and who holds them
Ask: For each large customer, who they call and how long that person has been there.
Why: If the owner holds the relationship, the customer is leaving with them unless you plan for it.
Who: You
Reviews, complaints and reputation
Ask: Public reviews, complaints history and how they were handled.
Why: Reputation inside a few zip codes is most of what you are buying.
Who: You
Conversations with customers, if the seller allows
Ask: Introductions to two or three customers under an agreed script.
Why: Nothing verifies a customer list like the customers.
Who: You
7.8What the business carries
Liabilities, insurance and the things that follow a business to its next owner.
Insurance policies and the claims history
Ask: Every policy in force, the declarations pages and five years of claims.
Why: The claims history says how the place is run, and the policies say what you will need to carry.
Who: Insurance broker
Workers' compensation history and rating
Ask: The experience modifier and any open claims.
Why: A poor rating raises the cost of every payroll dollar for years.
Who: Insurance broker
Litigation, judgments and disputes
Ask: Anything pending, threatened or settled in the last five years.
Why: In an asset sale most of it stays with the seller; the reputation does not.
Who: Attorney
Warranties, guarantees and open obligations to customers
Ask: What the business has promised customers that is still outstanding.
Why: Work under warranty is cost you inherit without revenue.
Who: You
Debts, taxes and anything secured against the assets
Ask: Loan statements, tax filings and a lien search.
Why: An unpaid tax bill can attach to the assets you are buying.
Who: Attorney
7.9Walking away
The conditions under which you stop, set before you start.
Your written conditions, agreed with your advisors
Ask: Yourself, before diligence begins: what finding would end this?
Why: Decided in advance, walking away is a decision. Decided under pressure, it is an argument.
Who: You
What a finding is worth, and what it is not
Ask: Your accountant and attorney, whether a finding changes the price, the structure or the decision.
Why: A real finding justifies a conversation. A tactic does not, and sellers can tell the difference.
Who: You
The deposit and the exclusivity clock
Ask: When the deposit goes hard and when exclusivity ends.
Why: The cost of walking away changes on those dates.
Who: Attorney
How you would tell the seller
Ask: Yourself, how to end it straight.
Why: This is a small world, and the next business you look at may know this seller.
Who: You
The pieces that explain each area are on the buyer track under Diligence; the ones not yet published are marked coming on the guides page. The documents each item asks for are listed on the quick reference.