You've found a business you like, agreed on a price, and signed a letter of intent. Now comes the part that separates a smart purchase from an expensive mistake: due diligence. This is your chance to confirm the business is everything the seller says it is before your money changes hands. Here's a practical checklist of 23 things to verify.

What due diligence is - and why it matters

Due diligence is the investigation you run after a deal is under agreement but before you close. Think of it as opening the hood and checking the engine. The seller has presented the business at its best; your job is to test those claims against the records and confirm there are no surprises waiting for you after the keys change hands.

On a Main Street business - roughly $500K to $10M in revenue - diligence usually runs 30 to 60 days from a signed letter of intent (LOI) to closing. Larger or more complex deals take longer. During this window you'll request documents, ask questions, and often bring in a CPA and an attorney to review what you find.

A quick note before we start: the items below are general guidance, not legal or accounting advice. Every deal is different, and you should lean on a qualified attorney and CPA to review the specifics of yours. Use this list to know what to ask for and why each piece matters.

The 23-item due diligence checklist

Financials

  • Reconcile three years of tax returns against the profit-and-loss statements - the two should tell the same story, and gaps between them are worth explaining.
  • Review bank statements and merchant deposits to confirm the reported revenue actually landed in the account.
  • Examine the seller's add-backs and owner benefit line by line - you're paying for the earnings, so every adjustment needs to be real and defensible.
  • Age the accounts receivable to see how much is current versus 90-plus days past due, since old receivables may never be collected.
  • Check inventory for accuracy and salability so you aren't buying dead stock counted at full value.

Legal & corporate

  • Confirm the legal entity is in good standing with the state and that formation documents, ownership, and any operating agreement are in order.
  • Search for liens, judgments, and UCC filings against the business or its assets so you don't inherit someone else's debt.
  • Read every material contract - suppliers, franchises, financing - and flag any that end or reprice when the business is sold.
  • Verify there is no pending or threatened litigation, and ask directly about disputes that haven't yet reached a courtroom.

Customers & revenue

  • Measure customer concentration - if one client drives more than 15 to 20 percent of revenue, losing them could sink the business.
  • Review recurring revenue and contract terms to understand how much income is locked in versus won for the first time each month.
  • Confirm whether key customer relationships belong to the business or to the departing owner personally, since the latter can walk out the door.

Operations & assets

  • Inspect the condition and age of equipment, and get an estimate for any near-term repairs or replacements you'll be funding.
  • Verify which assets are owned outright versus leased or financed, so you know exactly what transfers at closing.
  • Review key supplier and vendor relationships and pricing to confirm they'll continue on the same terms under new ownership.
  • Assess systems, software, and data - including who owns the website, domain, and customer records - to be sure nothing critical stays with the seller.

People

  • Review the employee roster with wages, tenure, and roles to understand what your payroll and talent really look like.
  • Identify which staff are essential and gauge their likelihood of staying after the sale, especially anyone the business can't run without.
  • Confirm worker classifications and any non-compete or employment agreements are proper and enforceable.

Premises & lease

  • Read the lease in full - term, rent escalations, and renewal options - and confirm it can be assigned or renewed under new ownership.
  • Verify the space, zoning, and any required permits fit how the business actually operates today.

Licenses & compliance

  • Confirm all business licenses, professional certifications, and permits are current and transferable to you.
  • Verify tax filings and payments are up to date - sales, payroll, and income - so you don't inherit an unpaid liability.

The best deals aren't the ones with no problems - they're the ones where you understood the problems before you signed. Diligence isn't about finding a reason to walk away; it's about buying with your eyes open.

ESS Business Services

How your advisors earn their keep

You don't have to run diligence alone, and you shouldn't. Three professionals do the heavy lifting, each in their lane.

A CPA digs into the financials - reconciling the returns, testing the add-backs, and confirming the earnings you're paying for are genuine. An attorney handles the legal side: reviewing contracts and the lease, running lien and litigation searches, and drafting the purchase agreement so your risks are covered. And a business broker keeps the process organized and moving - managing the document requests, keeping both sides talking, and drawing on deal experience to tell a normal wrinkle from a genuine warning sign.

Together they turn a stack of documents into a clear picture of what you're actually buying. That clarity is the whole point of diligence - and it's what lets you close with confidence instead of crossed fingers.