Due Diligence Checklist for Buying a Business
Key takeaways
- •Due diligence verifies the seller's claims before money changes hands.
- •Cover four areas: financial, legal, commercial, and operational.
- •Customer concentration and owner dependence are the most common value risks.
- •Findings should feed back into price, structure, and warranties — not just yes/no.
What due diligence is for
Due diligence is the buyer's chance to confirm that the business is what the seller says it is — before the deal is final. It's not about finding reasons to walk away; it's about understanding exactly what you're buying and adjusting price, structure, or protections accordingly.
The work begins after a letter of intent is signed and typically runs 30–75 days. Organized sellers with a ready data room make it faster; disorganized ones make it painful.
Financial diligence
Confirm the numbers the valuation was built on.
- Three to five years of financial statements and tax returns.
- Verification of the add-backs used to calculate SDE or EBITDA.
- Accounts receivable aging and bad-debt history.
- Revenue by customer to assess concentration risk.
- Working capital requirements and seasonality.
Legal, commercial, and operational
Look beyond the financials at everything that makes the business run.
- Legal: corporate records, contracts, leases, litigation, licences, and permits.
- Commercial: customer relationships, supplier terms, competitive position, and market trends.
- Operational: key employees, owner dependence, systems, equipment condition, and IT.
- The real reason the owner is selling — and whether it signals a hidden problem.
Red flags worth pausing on
Some findings warrant a closer look or a price adjustment: a single customer representing a large share of revenue, financials that don't reconcile with bank deposits, key staff likely to leave, a lease that can't be assigned, or a seller reluctant to provide documentation.
None of these necessarily kill a deal — but each should change your offer, your structure, or the warranties you require from the seller.
Frequently asked questions
About the author
Ali Sedighi, MBA, is the founder of BizSell.ca, a confidential business brokerage and M&A advisory serving British Columbia in five languages. He leads every engagement personally, from valuation through close.
This article is general information for business owners, not legal, tax, or financial advice. Rules and figures change — confirm specifics for your situation with a qualified professional.