Due Diligence Checklist: What Buyers (and Sellers) Should Never Overlook
- Robert Fiorella
- Mar 20
- 3 min read
Buying or selling a business is a big move, and due diligence is the key to making it a successful one. Whether you're a buyer looking for a solid investment or a seller preparing for a smooth transition, understanding what to examine can save you from costly surprises. Here’s a comprehensive checklist to guide you through the process.
Understanding Due Diligence
Due diligence is the process of reviewing a business’s financial, operational, and legal health before finalizing a transaction. It helps buyers validate their investment and ensures sellers address potential red flags before negotiations begin.
Key Areas of Due Diligence
1. Financial Due Diligence
Buyers need a clear picture of the company’s financial health. Sellers should ensure their financials are accurate and well-documented.
Review profit and loss statements, balance sheets, and cash flow reports
Check tax returns for the past three to five years
Analyze revenue trends and cost structures
Verify outstanding debts, liabilities, and loans
Examine accounts receivable and payable
2. Legal Due Diligence
Avoid legal pitfalls by ensuring the business complies with all regulations and contracts are in order.
Review all business licenses, permits, and compliance records
Check for ongoing or past lawsuits and legal disputes
Examine employee contracts, vendor agreements, and lease agreements
Ensure intellectual property (trademarks, patents, copyrights) is properly registered
3. Operational Due Diligence
Understanding how the business runs day-to-day helps buyers determine its long-term viability.
Review organizational structure and key personnel
Assess operational efficiency and workflows
Examine supply chain and vendor relationships
Evaluate customer satisfaction and retention rates
Check technology systems, cybersecurity, and IT infrastructure
4. Market and Competitive Analysis
Knowing how the business fits into the industry landscape is crucial.
Assess market position and industry trends
Review customer demographics and sales channels
Analyze competitors and their market share
Identify potential growth opportunities or threats
5. Strategic Fit and Value Extraction
For buyers, understanding how the acquisition aligns with their business strategy is essential.
Determine if the acquisition complements existing products or services
Identify synergies that can create cost savings or revenue growth
Ensure cultural and operational alignment between companies
6. Tax and Compliance Review
Tax issues can derail a deal. Both buyers and sellers should ensure compliance with tax laws.
Verify payroll taxes, sales taxes, and corporate taxes
Identify potential tax benefits or liabilities post-acquisition
Ensure proper documentation of tax filings
FAQs
Why is due diligence important in business acquisitions?
Due diligence helps buyers assess risks and ensures sellers provide transparency, reducing the chances of unexpected financial or legal issues.
What happens if due diligence uncovers issues?
How long does the due diligence process take?
Who should conduct due diligence?
CEO and Founder of First CxO.
Bob Fiorella is a strategic problem solver, M&A advisor, and right-hand man to CEOs and business owners contemplating or dealing with a major change; whether it's restructuring a company, building a finance team, getting a loan, setting the company up for growth, successfully selling the company, etc. He began his career as an investment banker and worked on several deals including the multibillion-dollar merger of Avery and Dennison. Over the subsequent two decades, Bob’s career centered around the media, entertainment, packaged goods, wholesale distribution, specialty retail, technology, and software development industries where he took on roles such as SVP Finance, Chief Financial Officer, Chief Operating Officer, Chief Strategy Officer, and independent board member. Bob is the Founder and President of First CxO. Some of his assignments include being a fractional CFO for a $30mm packaging technology company, a $5mm software development company, and a $25mm e-commerce company. He is also an advisor to a $500mm franchising company. Bob holds a BS in Economics from Cornell University and an MBA from UCLA’s Anderson School of Management. Bob can be reached at 310-422-6858, bob@firstcxo.com.
Bob’s “claim to fame” is appearing on Season 13 of America’s Got Talent as part of the Angel City Chorale. They made it to the Semi-Finals.
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