The LOI is signed. The exclusivity clock is ticking. Now begins the 60–90 day sprint where deals either hold together or fall apart. Most acquisitions that close have surprises in due diligence. The ones that fail to close (or close badly) had surprises that a better checklist would have found.
This is the checklist. It's organized by category, roughly in the order you'd work through it.
Financial Due Diligence (Items 1–15)
- 3 years of tax returns (business, not just financials—tax returns are harder to manipulate than P&Ls)
- 3 years of P&L and balance sheets, reconciled to tax returns
- Trailing 12 months of financials, updated to within 60 days of LOI
- Bank statements for all business accounts, 24 months
- Add-back documentation: receipts and justification for every add-back claimed in the CIM
- Top 10 customer revenue by year, with contract status and renewal dates
- Top 10 vendor/supplier spend with contract terms and exclusivity clauses
- Accounts receivable aging: flag anything >90 days as potentially uncollectible
- Accounts payable aging: understand if seller has been stretching payables
- Inventory count and condition (if applicable)
- Working capital baseline: what's the normalized working capital needed to operate?
- Capital expenditures history: has the seller been underinvesting in equipment/systems?
- Payroll records: verify headcount matches CIM, check for 1099 vs. W-2 misclassification
- Sales tax compliance: nexus analysis, outstanding obligations
- QoE report from a transaction advisory firm (non-negotiable for SBA deals >$1M)
Legal Due Diligence (Items 16–27)
- Entity formation documents: articles of incorporation, operating agreement, bylaws
- Cap table / ownership ledger: confirm seller owns what they say they own
- All material contracts: customer agreements, vendor agreements, leases, loans
- Lease review: term remaining, renewal options, assignment clause (can you assume the lease?), personal guarantee requirements
- IP ownership: trademarks, domain names, software, trade secrets—are they owned by the entity being acquired?
- Pending or threatened litigation: ask directly, get representation in APA
- Government contracts or licenses: are they assignable?
- Franchise agreements (if applicable): transfer fees, approval process, territory rights
- Non-compete and non-solicit agreements with key employees
- Employment agreements: are any employees under agreements that survive the sale?
- UCC filings: are there liens on assets you're acquiring?
- Environmental assessments: Phase I at minimum for any real property or heavy industrial
Operational Due Diligence (Items 28–38)
- Org chart and key employee interviews: who really runs things day-to-day?
- Employee tenure and turnover history: high churn is a culture or comp signal
- Customer reference calls: minimum 3, ideally 5, selected by you (not the broker)
- Supplier reference calls: do vendors have concerns about payment history or relationship?
- Systems and software inventory: what's the tech stack, what are the license costs, what's the integration complexity?
- Process documentation review: do SOPs actually exist and are they current?
- Equipment condition and maintenance records
- Insurance review: current coverage types, claims history, any issues with renewal
- Health, safety, and regulatory compliance: OSHA, state licensing, industry-specific requirements
- Reputation audit: Google reviews, BBB, industry-specific review sites, Glassdoor
- Competitive landscape: who are the top 3 competitors, what's the business's positioning?
SBA-Specific Requirements (Items 39–47)
- SBA eligibility confirmation: business size standards, U.S. operation requirement, for-profit status
- Buyer injection documentation: source of funds for equity injection (typically 10%), gift letters if applicable
- Personal financial statements: lender will want 3 years of personal tax returns and a personal financial statement
- Business valuation: SBA requires formal appraisal for loans >$250K involving goodwill
- Environmental questionnaire: SBA Form 1060 for any real estate collateral
- Seller standby note structure: if seller is carrying paper, confirm it's structured as a proper standby note (no payments for 2 years minimum)
- Life insurance underwriting: start the key-man policy application early—health issues can delay or kill deals
- Lease term vs. loan term: SBA requires lease term to extend at least as long as the loan term; negotiate lease extension if needed
- Change of ownership approval: for licensed businesses, confirm license is transferable or reissuable before close
Using This List Without Drowning
47 items is a lot. The reality of small business acquisition is that you won't complete every item on every deal—due diligence is risk-adjusted. A $300K business with a 10-year operating history, clean books, and no employees needs less scrutiny than a $2M business with complex customer contracts and a 40-person team.
The items marked as non-negotiable are: tax returns + QoE reconciliation, lease assignment clause, UCC lien search, customer references (you select), and SBA eligibility confirmation. Everything else is proportional to deal size and complexity.
DealPacket generates the initial deal memo—the Layer 2 screen that tells you whether a deal is worth running this checklist on. Start there.