Financial and Tax Review
Reconcile revenue to bank activity and source systems. Review monthly profit and loss statements, balance sheets, tax returns, general ledgers, accounts receivable, accounts payable, payroll, debt, capital expenditure, and cash conversion across multiple years and the trailing period.
Build an independent normalization schedule. Test every add-back, related-party transaction, revenue cut-off issue, unusual journal entry, deferred expense, and working-capital assumption with source support.
Customers, Market, and Revenue Quality
Analyze revenue and gross profit by customer, service, product, location, and channel. Review concentration, retention, churn, pricing, backlog, contracts, pipeline quality, competitive position, and reasons for customer loss.
Speak with selected customers when the process and confidentiality agreements permit. A contract does not by itself prove satisfaction or renewal probability.
Operations, People, and Technology
Map the complete operating workflow, capacity, quality controls, scheduling, purchasing, inventory, equipment, facilities, safety, technology, cybersecurity, data ownership, and disaster recovery.
Review organization structure, compensation, tenure, performance, restrictive covenants, benefits, open positions, contractor classification, key-person dependence, and employee sentiment. Identify every responsibility that exists only in the seller's head.
Legal, Insurance, and Closing Readiness
Qualified counsel should review entity records, ownership, contracts, leases, licenses, permits, intellectual property, litigation, claims, compliance, environmental matters, privacy, employment documents, and required consents.
Confirm insurance history and replacement coverage. Build a closing tracker for financing, landlord and customer consents, licenses, employee transition, system access, working capital, seller deliverables, and post-closing obligations.
Buyer Checklist
- Reconcile revenue and cash
- Test normalized earnings and add-backs
- Calculate normalized working capital
- Measure customer and employee concentration
- Review contracts, licenses, and transfer consents
- Map owner-dependent knowledge
- Inspect technology, insurance, and controls
- Maintain one findings and decisions log
Frequently Asked Questions
How long does acquisition due diligence take?
Timing depends on company size, record quality, financing, industry, access, and the number of issues. The scope should follow risk rather than an arbitrary deadline.
Who should be on the diligence team?
Depending on the deal, the team may include legal, accounting, tax, operational, insurance, technology, industry, environmental, real-estate, and lending professionals.
What should happen when diligence finds a problem?
Quantify the issue and decide whether it changes price, structure, closing conditions, transition, the operating plan, or the decision to proceed.
This guide is educational and does not replace transaction-specific legal, tax, accounting, lending, insurance, or valuation advice from qualified professionals.