Suppose a buyer agrees to purchase an online business reporting $800,000 in annual profit. During M&A due diligence, they discover that one customer supplies nearly half the revenue and can cancel their contract with 30 days’ notice. A due diligence checklist brings that exposure into the discussion before the buyer commits to closing.
M&A due diligence is the investigation of a company’s finances, legal obligations, operations, and other business risks before a transaction. Buyers use the findings to test the proposed price and terms. Sellers use the same questions to prepare their records and address concerns early.
This M&A due diligence checklist explains what to request, who should review it, and how findings move from the data room into deal decisions.
Initial due diligence checks will typically occur prior to signing the letter of intent or LOI. Buyers will look at financials of the company, talk to the seller, and see if it fits their business objectives. The seller can start getting ready for this process long before that point.
The thorough investigation will take place after the LOI has been signed, as the parties will have described the terms of the deal. Such analysis will usually occur in parallel with negotiating the purchase agreement and may be extensive depending on the nature of the business and acquisition type.
For many small and midsize transactions, 30 to 90 days is a reasonable planning range for formal diligence. Incomplete records, financing requirements, or regulatory approvals can extend the wider closing timetable. Treat the range as an estimate, not a deadline that applies to every transaction. Website Closers’ diligence timeline
The exclusivity period can prevent the seller from trying to solicit other bidders while this process is ongoing. The Letter of Intent should spell out the exclusivity period, its conditions, and how long it lasts. Even if the terms of the purchase are not, confidentiality and exclusivity clauses can be binding.
A merger and acquisition due diligence checklist needs an owner, a timetable, and a way to track unanswered questions. The sequence usually follows these stages, with some work happening at the same time:
M&A due diligence consulting can fill gaps in the buyer’s team. A practical division of responsibility looks like this:
| Workstream | Typical review owner | Main question |
| Financial and tax | Transaction accountant and tax advisor | Do earnings and liabilities support the price? |
| Legal and compliance | M&A attorney | Can the deal close on the proposed terms? |
| Commercial | Buyer’s commercial lead or specialist | How dependable is future demand? |
| Operational | Buyer’s operations lead | Can the business keep running after transfer? |
| Technology and data | Technical and cybersecurity reviewers, with privacy counsel | What must transfer, change, or be repaired? |
Start with past financial statements, management monthly accounts, and most recent year’s performance. 3 years will serve as a good starting point; however, the period may be extended depending upon the business. Obtain the general ledger, bank statements, tax documents, and aged account receivables and payables. Compare and reconcile any discrepancies before using the reported profitability figure.
A due diligence checklist for buying a business should test how earnings were calculated. In M&A financial due diligence, a quality of earnings review examines revenue, expenses, and adjustments to assess sustainable earnings. It can also identify working capital needs that affect the cash required after closing.
If the owner reinvests the entire amount of their salary but the purchaser requires a new manager, this is an expense that should be included in the analysis. Ask for documentation backing up the adjustment, justify why it might affect the expense, and confirm that it has not been double-counted.
Issues to consider when cash is collected before revenue is recognized include revenue recognition. A yearly fee for the subscription may cover months of service that have not yet been delivered. Look at deferred revenue, chargebacks, disputes, and revenue booked during year-end.
Working capital review should cover collection times, inventory quality, payment cycles, and seasonal swings. Define the accounts included in the negotiated working capital target and use consistent accounting policies. In a debt-free cash-free transaction, specify how cash, debt, and debt-like items affect the amount paid to the seller; avoid counting the same liability in multiple adjustments.
A sales target that requires more staff, inventory, or advertising should include those costs. Review capital expenditure needs, outstanding borrowing, guarantees, and tax compliance across relevant jurisdictions. Ask the tax advisor to investigate missing filings, unpaid balances, and open audits.
Legal review begins with confirming who owns the business and who can authorize the sale. Request formation documents, governing agreements, ownership records, and relevant approvals. Identify options, investor rights, or other claims that could affect the transaction.
Read material contracts in full, including amendments and side agreements. Customer and supplier contracts, leases, loan agreements, and licenses may contain assignment restrictions or change-of-control provisions. Record which agreements require consent and who will obtain it. Contract findings can affect both closing conditions and purchase agreement protections.
Intellectual property ownership needs a documented trail. Review trademark and patent records where relevant, domain registrations, software licenses, and agreements assigning work created by employees or contractors. Payment for development should not be treated as sufficient evidence that all required rights belong to the seller.
Tailor the due diligence checklist for M&A to the company’s actual obligations. Examine litigation history, threatened claims, employment agreements, benefit commitments, and worker classification. Check licenses and permits, regulatory correspondence, and industry-specific compliance records. Include an environmental review when facilities or activities create relevant exposure.
Insurance review should address coverage, exclusions, claims history, and whether policies continue after the transaction. Ask counsel to connect material findings to the representations and warranties, which are contractual statements about the business. The disclosure schedule records agreed disclosures and exceptions; indemnity provisions set out responsibility for specified losses, subject to negotiated terms.
Strong historical sales can hide weakening demand. Break revenue down by customer, product, channel, and geography, then examine retention and margins. A checklist for due diligence when buying a business should show where revenue comes from and what could interrupt it.
Customer concentration deserves more than a percentage alone. Review the renewal dates of the most significant customers, their payment history, buying habits, and relationship with the owner. Take a look at a business where a single customer accounts for 40% of revenue: A multi-year contract and a cancelable monthly contract mean different risks. Test the impact on costs and cash flow from losing the client.
The review of suppliers should include the terms of pricing, minimum purchase volumes, lead times, exclusivity, and alternative suppliers. Verify the inventory according to documentation and physically where it is needed. Obsolete goods could require write-downs, and a sole-source supplier requires alternatives before the buyer is capable of growing its orders.
Track down orders from order placement to fulfillment, billing, and customer support. Determine who does the work at each step, limits of the capacity of equipment, and recurring system failures. Who are the individuals and systems that are part of this process? What is the capacity level of the individuals and systems? What are the maintenance requirements of the system? Ask yourself who takes care of the tasks performed daily and weekly by the owner of the company.
An acquisition due diligence checklist must outline which technologies will be owned by the purchaser. Ask for an inventory of all the systems, which include software, source-code management, hosting, domain names, payments, and third-party applications. Distinguish between the assets that belong to the company and the licensed technologies or personal accounts of the founder/consultant.
When it comes to SaaS companies, get a professional to assess the architecture of the application, maintainability of the code, release process, and technical debt. Compare the current infrastructure capabilities and costs with the expected growth rate. Account for the cost and time of replacement of unsupported technologies or solving the ownership issues. BDO’s IT due diligence process.
Cybersecurity review must evaluate the validity of any policies. Ask for logs, access control measures, security assessments, and backup restoration processes. Find out whether old employees still have access and whether any important administrative accounts are protected. Any unresolved issue should be assigned a fix price, a responsible party, and a deadline.
Map the personal data collected, where it is stored, who receives it, and how long it is retained. Privacy counsel should assess applicable data protection requirements, customer commitments, and any restrictions on transferring or using that information after closing. Review relevant policies, service-provider terms, and past complaints.
Review the platforms’ dependence by establishing the process of transfer of merchant accounts, application listings, advertising accounts, and any other accounts necessary for conducting the business. A working account does not imply that such an account can be transferred to a new owner.
Sellers can use a buying a business due diligence checklist to examine their company from the buyer’s perspective before going to market. Start with records that support the asking price, then investigate anything that contradicts the sales materials.
Organize your data room according to the request list. Do this by naming files properly, including dates, using signed documents, and making sure that there is one point of contact for all responses. Reconcile your financials, tax returns, and operating reports; explain any legitimate discrepancies instead of letting the buyer try to guess.
Deal with known problems right away. The absence of contractors, expired permits, and unsupported add-backs are better addressed with supporting documentation and an outline of the suggested course of action. A seller-commissioned quality of earnings report could be helpful in spotting financial discrepancies before negotiations begin, but a buyer will likely do their own analysis anyway. Baker Tilly’s pre-sale diligence checklist guide
Use the common question log that includes the request itself, its author, due date, link to the document, and review status. You can use a due diligence checklist Excel template if you have proper access and version control. Make regular follow-up calls, escalate issues preventing the closing, and update your trading record.
A good business-buying checklist links financial, legal, commercial, operational, and technological findings with the purchase decision. The buyer requires proof of value and clarity of what will be needed from business ownership, while the seller needs documentation to support the consistency of his or her business.
Early preparation will assist with reducing unnecessary delays as well as helping to safeguard the agreed-upon price, although the actual findings may influence the deal nonetheless. Prior to the deal closing, it is necessary to determine how material risks will be managed and who will be responsible for any outstanding issues.
The typical period for many small to medium-sized transactions is 30 – 90 days, although the level of complexity and preparation of the documentation is more important than any predetermined goal. Define deadlines for receiving documents, reviewing documents, addressing issues found, and the transaction closure separately. The lender approval process or consent of other third parties can run concurrently with the investigation process.
Buyers typically compensate for the professionals that they hire. Sellers compensate for all their costs relating to their legal, accounting, and due diligence activities, including reports commissioned by the sellers themselves. It is possible to have a different arrangement, and you should check who compensates whom in the letter of engagement.
Buyers usually prioritize earnings, cash generation, ownership, and risks that could undermine the reason for buying. The order should reflect the business. A software acquisition may require early confirmation of code ownership, while a regulated business may depend on a license or approval that cannot be assumed to transfer.
A Quality of Earnings report examines the sustainability of reported earnings and the adjustments needed to understand them. The scope often includes revenue trends, expenses, working capital, and net debt. It serves a different purpose from an audit and does not guarantee future results
Unsupported earnings, undisclosed liabilities, uncertain ownership of key assets, and the loss of a major customer can make a buyer reconsider. A required consent that cannot be obtained can also prevent closing. Whether an issue ends the deal depends on the exposure and whether both parties accept a workable solution.
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