Buyer Research Checklist

3 years of P&L statements

Request Profit & Loss statements for the past 3 years to identify trends in revenue, costs, and profitability.

Bank statement reconciliation

Verify reported revenue by cross-referencing P&L figures with actual bank deposit records.

Tax returns (3 years)

Compare filed tax returns to reported financials — significant discrepancies are a red flag.

Accounts receivable & payable aging

Review AR aging to assess collection quality; AP aging reveals how the business manages its obligations.

Owner add-backs and discretionary expenses

Identify and validate all adjustments to reported profit (personal costs separated from business profit).

Working capital requirements

Understand how much cash is needed to run day-to-day operations and negotiate what is included at closing.

Debt and liabilities schedule

Identify all outstanding loans, lines of credit, deferred revenue, and contingent liabilities.

Entity structure and ownership verification

Confirm the legal entity type (LLC, S-corp, etc.), ownership percentages, and that the seller has authority to sell.

Active contracts and agreements

Review all customer, vendor, lease, and employment contracts — pay attention to assignment clauses and ownership transfer clauses (what happens when the business changes hands).

Litigation history and pending claims

Search court records and ask the seller to disclose any past, pending, or threatened lawsuits.

Licenses and permits

Confirm all required business licenses, professional permits, and regulatory approvals are current and transferable.

Intellectual property ownership

Verify trademarks, domain names, patents, copyrights, and trade secrets are owned by the business (not the owner personally).

Non-compete and non-solicitation agreements

Ensure the seller will sign a non-compete covering the relevant geography and time period post-closing.

Regulatory compliance history

Check for past or ongoing compliance issues with government agencies, industry regulators, or environmental authorities.

Standard operating procedures (SOPs)

Assess whether the business has documented processes that would allow a new owner to run it without the seller.

Key vendor and supplier relationships

Identify critical suppliers, review contracts, and assess concentration risk or exclusivity arrangements.

Lease and facility review

Review lease terms, expiration dates, renewal options, and whether the landlord must approve a transfer.

Equipment and asset condition

Inspect all included equipment and assets for age, maintenance history, and upcoming replacement costs.

How much the business depends on the current owner

Determine how much of the business depends on the current owner's relationships, skills, or reputation.

Inventory levels and valuation

For product businesses, verify current inventory value, turnover rate, and what is included in the sale price.

Operational KPIs and metrics

Request and validate key performance indicators — order volume, delivery times, defect rates, utilization, etc.

Customer concentration analysis

Ask for revenue by customer — if the top 1-3 customers represent >30% of revenue, that is a significant risk.

Customer retention and churn rates

For recurring revenue businesses, understand monthly/annual churn and net revenue retention.

Key customer contracts and renewal terms

Review contracts with top customers — note term lengths, renewal provisions, and any cancellation rights.

Customer disputes and refund history

Check for any significant disputes, chargebacks, refund patterns, or negative customer experiences.

Online reputation and reviews

Review Google, Yelp, Trustpilot, or industry-specific review sites for patterns in customer satisfaction.

Sales pipeline and backlog

Understand the current pipeline, signed-but-not-started contracts, and any known upcoming churn.

Full employee roster with tenure and compensation

Request a complete employee list including roles, start dates, salaries, and bonus structures.

Key employee retention plans

Identify employees critical to operations and discuss retention packages to keep them post-acquisition.

Management team capability

Assess whether the management team can operate the business independently without the owner.

HR disputes and employment claims

Ask about any pending, threatened, or past claims from employees (discrimination, wage, wrongful termination).

Benefits, PTO, and compensation structure

Review health insurance, retirement plans, vacation accruals, and any deferred compensation obligations.

Contractor vs. employee classification

Verify that workers classified as independent contractors are not legally employees — misclassification is a significant liability.

Software systems and licenses inventory

List all software tools, SaaS subscriptions, and licenses — confirm transferability and assess total cost.

Website, domain, and digital assets

Verify ownership of all domains, social accounts, email lists, and digital content included in the sale.

Cybersecurity posture and data practices

Assess how customer data is stored and protected; check for past breaches or compliance requirements (GDPR, HIPAA, etc.).

Proprietary technology and code ownership

Confirm any custom software or technology is owned by the business and that developer agreements assigned IP rights.

Technical debt and system dependencies

Evaluate the state of internal systems — aging infrastructure, lack of documentation, or vendor lock-in can be costly.

Backup and disaster recovery

Confirm data backup procedures are in place and that the business can recover from a system failure.