Preparation

Updated April 18, 2026

Due diligence: the document file a serious buyer will ask for

Between letter of intent and closing, the buyer's team reviews the financial, legal, operational, and licensing history of the business. Sellers who assemble the file before going to market close faster, field fewer surprises, and hold price through diligence. This is the working checklist.

Why this is different from the handoff checklist

The bookkeeper handoff checklist is about transferring operating knowledge to the new owner so the business keeps running after close. Due diligence is earlier and different: it is about proving to the buyer's advisors that the business is what the seller says it is before the buyer signs the purchase agreement.

The 2 checklists overlap in places (employee list, licensing status, insurance) but the purpose and audience differ. Due diligence documents go to the buyer's CPA, attorney, and lender. Handoff documents go to the operator who will run the business on day 1.

When due diligence happens

Due diligence typically starts when the letter of intent is signed and runs 30 to 90 days, depending on deal size and buyer type. SBA-backed individual-buyer deals tend to take longer (60 to 90 days) because the lender runs its own process in parallel. PE rollup deals often compress to 30 to 45 days.

Sellers who start assembling the file only after the LOI is signed spend the diligence period scrambling. Sellers who have the file ready before going to market can shorten the diligence window by weeks, which reduces the risk of the deal breaking from delay or second thoughts.

How the buyer's team uses each category

The buyer's CPA focuses on the financial file (tax returns, P&L, balance sheet, customer concentration). They verify the seller's stated earnings and run the normalization exercise.

The buyer's attorney focuses on the legal file (entity documents, contracts, litigation, liens). They look for liabilities that could follow the business after close.

The buyer's lender (in SBA deals) focuses on collateral and cash flow. They want equipment lists, real estate, and debt-service coverage. SBA 7(a) underwriting has specific documentation requirements published on sba.gov.

The buyer's operations team (in rollup and strategic deals) focuses on the operational file (employee roster, licensing, customer book, systems). They are planning the integration.

What happens when diligence finds something

Issues in diligence are normal. The question is whether they are material. A missing supplier contract is typically fixable. An unresolved state contractor-board complaint, a misclassified employee audit risk, or a large customer that represents 40% of revenue are material and may trigger price re-negotiation or structural change to the deal.

The CPA and attorney help the seller respond. Not every issue is disqualifying; the right response is often a representation and warranty in the purchase agreement, sometimes backed by an escrow from the sale proceeds. Rep-and-warranty insurance is an option on larger deals.

The checklist

  1. Federal tax returns: prior 3 to 5 years of 1120, 1120-S, or 1065.
  2. Financial statements: prior 3 years of P&L, balance sheet, and cash flow, ideally CPA-reviewed or compiled.
  3. Current-year interim financials through the most recent month-end.
  4. General ledger detail and chart of accounts for the prior 3 years.
  5. Accounts receivable aging report and bad-debt history.
  6. Accounts payable aging report.
  7. Bank statements: prior 24 months for all business accounts.
  8. Customer list with revenue by customer for the prior 3 years (used to measure concentration).
  9. Top 20 customer contracts or service agreements.
  10. Supplier list with terms, volume commitments, and any rebate or co-op programs.
  11. Equipment schedule: vehicles (VIN, year, mileage), tools, and major equipment with acquisition date and cost.
  12. Real estate: title, mortgage, lease agreements, environmental reports if applicable.
  13. Employee roster: hire date, role, pay rate, bonus history, benefits, licensed or certified status, W-2 vs 1099 classification.
  14. Employee benefit plan documents: health insurance, retirement plan, any deferred-compensation arrangements.
  15. Payroll tax filings: 941, 940, state unemployment, state withholding, for prior 12 quarters.
  16. Independent contractor records: 1099s issued for prior 3 years, contractor agreements.
  17. Worker classification documentation (the buyer's attorney will look for misclassification risk).
  18. Entity documents: articles of incorporation or organization, bylaws or operating agreement, stock ledger or membership list, minute book.
  19. Licensing: master and contractor licenses held by the company and by named employees, with expiration dates and CE records.
  20. State contractor-board record: any complaints, citations, or disciplinary actions, with resolution status.
  21. Insurance policies: general liability, workers compensation, commercial auto, umbrella, cyber, surety bonds, with premium history.
  22. Insurance claim history for the prior 5 years.
  23. Pending and historical litigation: any lawsuits (filed by or against the company), liens, judgments, in the prior 5 years.
  24. Environmental: any hazardous materials handling, disposal records, EPA registrations if applicable.
  25. Intellectual property: trademarks, domain names, proprietary software, customer databases.
  26. Software and systems: accounting, dispatch, CRM, payroll, with license transferability confirmed.
  27. Contracts: any non-standard agreements with customers, suppliers, landlords, or employees.
  28. Non-compete and non-solicit agreements with employees (and enforceability in the seller's state).
  29. Loans and lines of credit: all outstanding debt with balance, rate, maturity, and personal guarantees.

Sources

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