Due Diligence Checklist for Buying a Business
67 documents to request when you buy a business, organized the way you would file them, with separate lists for commercial real estate and franchise resales. Tick items off as they come in, and see which ones your SBA lender will ask for too.
Buying a business: due diligence checklist
The documents buyers usually request from a seller, organized the way you would file them.
1. Financial statements and taxes
What the business reported, to the IRS and to itself.
2. Bank, cash and merchant statements
Proof the revenue actually reached the bank.
3. Payroll and employees
Who does the work, what they cost, and who might leave.
4. Expenses, credit cards and receipts
What the business really spends, and what the owner runs through it.
5. Customers and sales
Where the revenue comes from and whether it stays.
6. Operations, equipment and inventory
What you are physically buying and how it runs.
7. Legal, licenses and insurance
What could follow the business to you.
8. Lease and location
Whether the business can stay where it is.
9. Deal documents
The paper trail of the transaction itself.
10. Your SBA loan package
Your own documents. Short, and the same for most lenders.
Buying commercial real estate: due diligence checklist
For an owner-occupied building, on its own or alongside a business purchase.
1. Title, survey and zoning
What you own, where its edges are, and what you can do with it.
2. Physical condition and environmental
What the building needs, and what is in the ground.
3. Property financials and tenants
What the building costs to own, and what it earns.
4. Purchase documents
The contract and the closing.
5. Your SBA loan package
Your own documents. Short, and the same for most lenders.
Buying a franchise resale: due diligence checklist
Everything in the business checklist, plus the franchisor's documents and approval.
1. Franchise documents
The franchisor's rules for the brand and for the sale.
2. Financial statements and taxes
What the business reported, to the IRS and to itself.
3. Bank, cash and merchant statements
Proof the revenue actually reached the bank.
4. Payroll and employees
Who does the work, what they cost, and who might leave.
5. Expenses, credit cards and receipts
What the business really spends, and what the owner runs through it.
6. Customers and sales
Where the revenue comes from and whether it stays.
7. Operations, equipment and inventory
What you are physically buying and how it runs.
8. Legal, licenses and insurance
What could follow the business to you.
9. Lease and location
Whether the business can stay where it is.
10. Deal documents
The paper trail of the transaction itself.
11. Your SBA loan package
Your own documents. Short, and the same for most lenders.
This checklist is general information to help you organize documents. It is not legal, tax, accounting or investment advice, and it does not cover every deal. Have your attorney, CPA and inspectors review your transaction.
Most of this pile is your loan file too
An SBA lender underwriting an acquisition asks for many of the same documents you need for diligence. Collect them once and the financing moves as fast as the diligence does. If you are financing the purchase, we can tell you early whether the deal fits a lender, and help you put the plan the lender reads together.
Questions buyers ask
What documents should I ask a seller for when buying a business?
Start with three years of business tax returns and year-end financial statements, a current year-to-date P&L and balance sheet, and the add-back schedule behind the asking price. Then bank statements, payroll, the lease, customer concentration, and the legal and operational records in the checklist above. Your attorney and CPA will add to it for your deal.
How much of due diligence overlaps with the SBA loan file?
A lot. Items marked "Lender asks too" are documents an SBA lender typically requests for an acquisition, such as the seller's tax returns, financial statements, the lease and the purchase agreement. Collecting them once, in order, saves weeks once the loan is underway.
How long does due diligence take?
It is set by the diligence period in your letter of intent and purchase agreement, and by how quickly the seller produces documents. Agree the period up front and send the document request on day one.
Is this checklist legal or accounting advice?
This checklist is general information to help you organize documents. It is not legal, tax, accounting or investment advice, and it does not cover every deal. Have your attorney, CPA and inspectors review your transaction.