Due diligence checklist for selling a business
Diligence rarely breaks a deal because of what a buyer finds. It breaks deals because of when they find it and how the answer arrives. This checklist covers what a buyer in the lower middle market asks for, stage by stage, and what a seller can prepare before the process begins so the answers stay consistent once several workstreams are asking at once.
The checklist
Six areas, in the order buyers usually work through them. Treat each line as a question you should be able to answer with a document rather than a recollection.
Corporate and ownership
- Certificate of incorporation, bylaws and any amendments
- Current cap table with every class of share and option
- Shareholder agreements, buy sell agreements and side letters
- Board and shareholder minutes for the last three years
- Subsidiaries, joint ventures and any dormant entities
- Registered agent details and good standing certificates
Financial
- Three years of annual financial statements plus year to date
- Monthly management accounts for the last 24 months
- Quality of earnings support: addbacks with the invoice or ledger behind each one
- Aged receivables and payables
- Working capital by month, so a normal level can be agreed
- Bank statements, loan agreements and any covenants
- Tax returns and correspondence with tax authorities
Commercial
- Revenue by customer for three years, with concentration stated plainly
- Top customer contracts, including renewal and termination terms
- Pricing history and any discounts that are not documented
- Pipeline and churn, with the definition used for each
- Supplier contracts and any single source dependency
- Marketing spend and the channels revenue actually comes from
Legal and contracts
- Material contracts with change of control provisions flagged
- Litigation, threatened claims and settlements
- Regulatory licences and their transferability
- Insurance policies and claims history
- Guarantees, indemnities and off balance sheet commitments
People
- Org chart with roles, tenure and compensation
- Employment agreements for key staff
- Non compete, non solicit and IP assignment coverage
- Contractor arrangements and any classification risk
- Benefit plans, accrued vacation and bonus obligations
- Owner dependency: what the seller personally does each week
Assets, IP and technology
- Fixed asset register and condition of material equipment
- Property leases, with assignment terms
- Trademarks, domains, patents and who legally owns them
- Software licences and any open source obligations
- Systems inventory, access control and backup practice
- Security incidents and how they were handled
What matters at each stage
- Before going to market
Assemble the checklist yourself. Anything you cannot evidence now is something a buyer will find later, at a worse moment and a lower price.
- NDA and teaser
Only summary material moves. Track who signed which version and what they can see.
- IOI
Buyers form a price from the financial and commercial packs. Every figure you send should trace back to a source document.
- LOI
Exclusivity starts the clock. The request list arrives in bulk, so the prepared material is what keeps the timetable.
- Confirmatory diligence
Questions arrive from several workstreams at once. The risk here is not the questions, it is two people answering the same one differently.
- Signing and closing
Disclosure schedules are written from the diligence record. A clean record shortens the schedule and narrows the indemnities.
Where checklists stop working
A checklist tells you what to collect. It does not tell you what is still open. Once diligence starts, the useful state is not the list of documents sent, it is the list of questions outstanding, who owns each one, what was decided, and which document settles it. That state changes daily and lives in nobody's spreadsheet for long.
For how that state is held once a deal is live, see the guides to M&A deal management software and deal tracking software.
How Dealinit approaches it
Dealinit holds one deal state across sources. Each open diligence question sits on the deal as an issue, the decision taken is recorded with the action it produced, and the evidence stays attached to both, so a figure can be traced back to the material it came from. Access is scoped per person and changes leave an audit trail; data is encrypted at rest and in transit. Pro is $199 per month.
Common questions
- How long does due diligence take when selling a business?
- In the lower middle market, confirmatory diligence usually runs four to eight weeks after the LOI. Sellers who prepared their material in advance sit at the shorter end. Sellers assembling documents on request tend to overrun, and overruns are where deals lose momentum.
- What is sell side due diligence?
- Running the diligence exercise on your own business before a buyer does. You find the issues first, fix what can be fixed, and prepare an explanation for what cannot. It costs time up front and protects price later.
- What do buyers ask for first?
- Financial statements, revenue by customer, and the contracts behind the largest revenue lines. Those three answer most of the questions behind their valuation, and the quality of what you send sets their expectation for everything after.
- What issues most often reduce the price?
- Customer concentration, owner dependency, addbacks with no support, unassignable contracts, and unclear IP ownership. None of these are fatal on their own. They cost money when they surface late and look like something that was being kept quiet.
- Do I need a data room?
- You need somewhere requests, answers and documents stay connected. A folder structure holds files but loses the question each file answered, which is the part that matters when a buyer asks again three weeks later.
- How does Dealinit help with diligence?
- Open questions sit on the deal as issues, the decision taken on each is recorded with the action it produced, and the document supporting it stays attached. Anyone with access reads the same current answer. Pro is $199 per month.