Sample Due Diligence Checklist

Due diligence is a complicated, taxing ordeal. The more you can do to prepare for it, understand it, and remain emotionally objective, the better you’ll fare and the more you’re likely to receive for your business. Having tools, such as checklists to track documents, requests, problems, and any of the many other aspects you must remain on top of will help you immensely. Here’s a sample due diligence checklist to give you an idea of what to expect.

Sample Due Diligence Checklist:

Operations:

• Advertising contracts
• Customer list
• Inventory count
• List of key competitors
• Marketing material
• Operations manual
• Preliminary equipment inspection 
• Premises lease
• Summary of key lease terms
• Supplier and vendor list
• Supplier and vendor contracts

Insurance:

• Health insurance policies
• Liability insurance policies
• Workers’ compensation policies and history

Assets:

• Description of any real estate owned
• Equipment inspection reports
• Equipment leases
• Equipment list 
• List of all assets included in price
• Inventory list

Staff:

• Meetings with management 
• Benefit plans
• Compensation arrangements
• Detailed schedule of payroll expenses
• Employment, agency, and independent contractor agreements
• Job descriptions
• List of outside contractors
• Other employment-related agreements
• Overview of personnel turnover
• Schedule of owners, officers, employees, independent contractors, consultants and their titles, length of service, and compensation benefits
• Summary biographies of key management

Legal: 

• Articles of incorporation and organization
• Business license
• Certificate of status and good standing from the applicable secretary of state
• Copies of licenses, permits, certificates, registrations, and other documents from all governmental authorities
• Copies of all key contracts
• Corporate or LLC by-laws or operating agreements
• Corporate or LLC minutes
• Description of environmental liabilities
• Fictitious business name statement (FBNS or DBA)
• Financing agreements
• Information for copyrights
• Information for patents
• Information for trademarks and service marks
• List of liens against the business
• Other third-party agreements or contracts
• Pending lawsuits
• Phase 1 and 2 environmental studies
• Preliminary UCC search results
• Previous purchase agreement and related documents for business
• Resale permit
• Seller’s disclosure statement

For a downloadable version of this due diligence checklist, visit the Resources page of our website at morganandwestfield.com/resources/downloads/.

Conclusion

I strongly recommend you invest the time necessary to prepare your business for due diligence. Most business owners skip this step altogether. By preparing for this process, you’ll significantly improve the chances of a successful sale. Additionally, demonstrating to the buyer that you’ve prepared for due diligence increases the buyer’s confidence in your business and reduces their perception of fear and risk. 

Due diligence can be heaven or hell. If you have your financials in order and all is well from an operational and legal standpoint, chances are due diligence will be uneventful, and your deal will take flight, bringing you one step closer to the closing of your dreams. If you’re unprepared and the buyer finds things amiss during due diligence, you’ll find yourself on the horns of a dilemma. Being prepared can go a long way in facilitating the outcome you want.