M&A Due Diligence Checklist for Small Business Acquisitions

An M&A due diligence checklist helps a buyer organize what needs to be requested, verified, investigated, and resolved before acquiring a business.

For a small-business acquisition, the checklist should not be treated as a list of boxes that all deserve equal attention. A buyer acquiring a software company, a manufacturer, and a home-services business may review many of the same categories, but the depth and priority of each workstream should be different.

The U.S. Small Business Administration advises buyers of existing businesses to conduct a thorough, objective investigation and highlights areas such as licenses, contracts, financial statements, tax returns, and purchase documentation. Deloitte’s M&A due diligence framework similarly describes financial, tax, legal, commercial, operational, and technology-related workstreams. This checklist translates those broad principles into a small-business acquisition workflow.

Use this checklist to identify the areas that require investigation, assign responsibility, track missing information, and connect material findings to the decision to proceed, renegotiate, restructure, or walk away.

For a broader explanation of how the overall process works, start with DueDilio’s M&A Due Diligence Guide.

How to Use This M&A Due Diligence Checklist

Before requesting every item below, establish four things:

1. What are the assumptions behind the acquisition?
2. Which risks could materially change the value or viability of the deal?
3. Which issues can the buyer investigate internally?
4. Which issues require financial, legal, tax, technology, insurance, HR, environmental, or other specialists?

Then create a working diligence tracker.

For each material item, record:

• requested information;
• date requested;
• information received;
• responsible reviewer;
• open questions;
• material findings;
• follow-up required;
• status; and
• potential effect on the transaction.

The checklist should evolve as new information appears.

1. Deal Structure and Transaction Documents

Start by understanding exactly what is being purchased and under what proposed terms.

Review:

• signed Letter of Intent or term sheet;
• proposed asset versus equity transaction structure;
• entities included in the transaction;
• assets included and excluded;
• liabilities expected to transfer;
• purchase price and form of consideration;
• seller financing;
• earnouts or contingent consideration;
• rollover equity, if applicable;
• working-capital mechanism;
• debt and cash treatment;
• escrow or holdback concepts;
• proposed closing date;
• exclusivity period;
• financing contingencies;
• required third-party consents;
• transition or seller-support arrangements;
• non-compete or restrictive-covenant concepts; and
• other material assumptions reflected in the LOI.

Questions to answer:

• Does the diligence plan match the actual structure of the transaction?
• Which liabilities could follow the buyer?
• Which assets, contracts, permits, employees, or relationships must transfer for the deal to work?
• What findings could affect purchase price or structure?
• Which issues must be resolved before the purchase agreement is signed?

An M&A attorney should advise on the legal implications of the transaction structure and acquisition documents.

2. Corporate Structure and Ownership

Confirm what legal entities exist, who owns them, and whether the seller has authority to complete the transaction.

Request and review:

• articles or certificates of incorporation or organization;
• bylaws or operating agreements;
• amendments;
• ownership and capitalization records;
• shareholder or member agreements;
• board and shareholder minutes where relevant;
• organizational chart;
• subsidiaries and affiliated entities;
• assumed names or DBAs;
• state registrations;
• good-standing information;
• equity grants, options, warrants, or similar rights;
• prior acquisitions or reorganizations;
• related-party entities; and
• records of material ownership disputes.

Questions to answer:

• Does the seller own what the buyer believes is being acquired?
• Are there minority owners or other parties whose approval is required?
• Are key assets held by a different entity or by the owner personally?
• Are there related-party arrangements that need to continue or be replaced after closing?

3. Historical Financial Performance

The objective is not merely to collect financial statements. The buyer needs to understand whether the historical numbers are sufficiently reliable for the decisions being made.

Request and review:

• monthly and annual income statements;
• balance sheets;
• cash-flow statements where available;
• trial balances;
• general-ledger detail;
• tax returns;
• budgets and forecasts;
• bank statements where appropriate;
• merchant-processor or payment-platform reports where relevant;
• accounting-system access or exports where appropriate;
• financial policies;
• prior audit, review, or compilation reports, if any;
• management reporting packages; and
• explanations for material historical changes.

Analyze:

• revenue trends;
• gross margins;
• operating expenses;
• EBITDA or SDE;
• cash generation;
• seasonality;
• profitability by location, product, service, channel, or customer where material;
• unusual accounting entries;
• differences between tax returns and internal financial statements; and
• material changes in accounting practices.

There is no universal rule requiring exactly three or five years of records. The appropriate period depends on the business, availability of reliable information, seasonality, recent changes, financing requirements, and the questions being investigated.

For a deeper review of this workstream, see Financial Due Diligence in Small Business Acquisitions.

4. Quality of Earnings and Normalized Earnings

When transaction value depends heavily on EBITDA or SDE, examine how those earnings were calculated.

Review:

• seller’s EBITDA or SDE calculation;
• all proposed add-backs;
• owner compensation;
• owner benefits and personal expenses;
• related-party transactions;
• one-time revenue;
• one-time expenses;
• discontinued activities;
• non-operating items;
• unusual payroll adjustments;
• pro forma adjustments;
• accounting-policy changes;
• deferred expenses;
• deferred maintenance; and
• expenses likely to change after ownership transfers.

Questions to answer:

• Which add-backs are supported?
• Which supposedly non-recurring expenses are actually necessary?
• What expenses will the buyer incur that the seller did not?
• Are recent improvements sustainable?
• Is normalized earnings materially different from the earnings used to price the transaction?

Depending on the size and risk of the acquisition, the buyer may use targeted financial verification, a limited-scope review, or a more extensive Quality of Earnings engagement.

See DueDilio’s Quality of Earnings Guide for more detail.

5. Revenue Quality

Revenue should be investigated beyond the total reported on the income statement.

Review:

• monthly revenue history;
• revenue by customer;
• revenue by product or service;
• revenue by location;
• revenue by sales channel;
• recurring versus non-recurring revenue;
• contracts and renewal terms;
• backlog;
• deferred revenue where relevant;
• refunds, credits, and chargebacks;
• customer retention;
• churn;
• cancellations;
• lost customers;
• discounts;
• sales incentives; and
• unusual year-end transactions.

Questions to answer:

• Is reported revenue supported by source records?
• How much revenue is recurring or repeatable?
• Is growth driven by volume, pricing, acquisition, or one-time events?
• Are recent trends materially different from the historical business?
• Does revenue depend on relationships controlled personally by the seller?

6. Customer Concentration and Relationships

Customer concentration can be important even when total revenue is stable.

Review:

• top customers by year and YTD;
• percentage of total revenue represented by major customers;
• gross profit by major customer where available;
• customer tenure;
• contract status;
• renewal provisions;
• termination rights;
• change-of-control provisions;
• pricing;
• payment behavior;
• sales pipeline;
• recent customer losses;
• customer complaints; and
• ownership of major customer relationships.

Questions to answer:

• What would happen if the largest customer left?
• Are the top customer relationships contractual or informal?
• Does the seller personally control key relationships?
• Has concentration been increasing?
• Are major customers profitable?
• Could ownership change affect retention?

7. Accounts Receivable

Receivables can reveal issues that are not obvious from revenue or earnings.

Review:

• AR aging;
• historical collection patterns;
• bad-debt expense;
• write-offs;
• customer disputes;
• credit memos;
• allowances;
• deposits received;
• overdue balances;
• concentration within AR; and
• subsequent collections on material balances.

Questions to answer:

• Are receivables collectible?
• Are old balances inflating working capital?
• Are disputes or credits likely?
• Is the seller accelerating invoicing before closing?

8. Accounts Payable and Accrued Liabilities

Review:

• AP aging;
• vendor statements where needed;
• accrued payroll;
• bonuses;
• commissions;
• vacation or PTO obligations where applicable;
• unpaid taxes;
• deferred expenses;
• customer deposits;
• warranty obligations;
• pending refunds;
• unpaid professional fees; and
• other accrued liabilities.

Questions to answer:

• Are all material liabilities recorded?
• Is the business delaying vendor payments?
• Are unpaid obligations being treated correctly in the purchase-price mechanics?

9. Working Capital

Working capital can materially affect how much cash the buyer needs after closing.

Review:

• historical monthly working capital;
• AR;
• inventory;
• AP;
• accrued operating liabilities;
• seasonality;
• unusual balances;
• recent changes in payment terms; and
• the working-capital definition contemplated by the transaction.

Questions to answer:

• What working capital is normally required to operate the business?
• Is the proposed peg based on an appropriate historical period?
• Are unusual or non-operating items distorting the calculation?
• Could the seller reduce working capital before closing?

10. Inventory

Inventory diligence is particularly important for manufacturers, distributors, retailers, and other inventory-heavy businesses.

Review:

• inventory listing;
• inventory by location;
• valuation methodology;
• aging;
• turnover;
• obsolete or slow-moving inventory;
• reserves;
• write-offs;
• cycle-count procedures;
• physical-count procedures;
• raw materials;
• work in process;
• finished goods;
• consigned inventory;
• customer-owned inventory; and
• unusual inventory changes.

Questions to answer:

• Is the inventory actually present?
• Is it saleable?
• Is it valued consistently?
• Is obsolete inventory overstating assets or earnings?
• Does inventory accounting affect reported gross margin?

11. Debt and Debt-Like Items

Review:

• loans;
• lines of credit;
• equipment financing;
• capital leases;
• accrued interest;
• seller notes;
• shareholder loans;
• customer deposits;
• deferred compensation;
• unpaid taxes;
• litigation-related obligations;
• transaction bonuses;
• unpaid capital expenditures; and
• other potential debt-like items.

Financial and legal advisors should determine how these items affect the purchase-price mechanics.

12. Capital Expenditures and Fixed Assets

Review:

• fixed-asset register;
• historical capital expenditures;
• maintenance versus growth investments;
• equipment age;
• condition;
• useful life;
• major repairs;
• maintenance records;
• replacement requirements;
• leased versus owned equipment;
• liens; and
• planned capital projects.

Questions to answer:

• Has the seller deferred necessary investment?
• What capital spending will be required soon after closing?
• Is historical EBITDA benefiting from unusually low maintenance spending?
• Which assets are essential to operations?

13. Tax

Tax diligence should be performed or reviewed by qualified tax professionals where material.

Request and review:

• federal income-tax returns;
• state and local returns;
• payroll-tax filings;
• sales and use-tax filings;
• property-tax records;
• tax notices;
• audits;
• payment plans;
• nexus exposure where relevant;
• tax elections;
• prior reorganizations; and
• transaction-specific tax issues.

Questions to investigate with advisors:

• Are all required returns filed?
• Are there unpaid taxes or unresolved audits?
• Could historical tax liabilities affect the buyer?
• Does the proposed transaction structure create specific tax considerations?
• Are there jurisdictions in which the company’s activities create unaddressed tax exposure?

Do not rely on a generic acquisition checklist for transaction-specific tax advice.

14. Material Contracts

Review:

• major customer agreements;
• supplier agreements;
• distributor agreements;
• leases;
• equipment leases;
• loans;
• franchise agreements;
• licensing agreements;
• partnership agreements;
• referral agreements;
• government contracts;
• key software agreements; and
• other contracts material to operations.

For each important agreement, identify:

• parties;
• term;
• renewal;
• termination;
• pricing;
• exclusivity;
• minimum commitments;
• assignment rights;
• change-of-control provisions;
• consent requirements;
• indemnification;
• unusual liabilities; and
• whether the agreement is actually being followed.

Legal counsel should review the legal implications of material contracts.

15. Litigation, Claims, and Disputes

Request and review:

• pending litigation;
• threatened claims;
• arbitration;
• demand letters;
• settlement agreements;
• customer disputes;
• employee claims;
• regulatory inquiries;
• insurance claims;
• warranty claims; and
• significant historical disputes.

Questions to answer:

• What is unresolved?
• What could survive closing?
• Is insurance available?
• Are similar claims likely to recur?

16. Licenses, Permits, and Regulatory Matters

The relevant requirements vary significantly by business and jurisdiction.

Review:

• operating licenses;
• professional licenses;
• permits;
• certifications;
• registrations;
• inspections;
• compliance reports;
• violations;
• consent decrees;
• regulatory correspondence;
• renewal requirements;
• ownership-transfer requirements; and
• pending applications.

Questions to answer:

• Can all essential licenses transfer?
• Must the buyer reapply?
• Could a change of ownership interrupt operations?
• Are there unresolved violations?

17. Real Estate and Facilities

Review:

• owned real estate;
• leases;
• amendments;
• renewal options;
• rent history;
• CAM or additional charges;
• security deposits;
• landlord correspondence;
• assignment rights;
• change-of-control clauses;
• zoning;
• permitted use;
• facility capacity;
• condition;
• required repairs; and
• expansion constraints.

Questions to answer:

• Can the buyer continue operating at the location?
• Is landlord consent required?
• Will rent change?
• Is the facility adequate for the buyer’s plan?
• Are significant repairs or improvements required?

18. Suppliers and Vendors

Review:

• top vendors by spend;
• concentration;
• contracts;
• payment terms;
• rebates;
• price changes;
• alternative suppliers;
• exclusive relationships;
• minimum purchase obligations;
• lead times;
• shortages;
• quality history; and
• supplier disputes.

Questions to answer:

• Is the business dependent on one supplier?
• Could pricing change after the transaction?
• Are important supplier relationships personally controlled by the seller?
• Are viable alternatives available?

19. Employees and Management

Review:

• employee roster;
• job titles;
• compensation;
• bonuses;
• commissions;
• tenure;
• benefits;
• accrued obligations;
• employment agreements;
• contractor arrangements;
• organizational chart;
• turnover;
• open positions;
• key-person dependence;
• management responsibilities; and
• expected employee changes after closing.

Questions to answer:

• Who is essential to continued operations?
• Who knows the customers, systems, processes, and institutional knowledge?
• Which employees need retention arrangements?
• Is compensation likely to change after acquisition?
• Is the business dependent on the seller to manage day-to-day operations?

Employment counsel and HR specialists should address legal and benefits matters where appropriate.

20. Owner Dependence and Transition

Owner dependence is particularly important in founder-led SMB acquisitions.

Review:

• seller’s weekly responsibilities;
• customer relationships;
• supplier relationships;
• sales involvement;
• pricing authority;
• financial management;
• employee management;
• technical knowledge;
• licenses or credentials held personally;
• passwords and system access;
• informal procedures;
• community relationships; and
• transition commitments.

Questions to answer:

• What stops working if the seller disappears tomorrow?
• What knowledge needs to be documented?
• How long should the transition period last?
• Which relationships need formal introduction or transfer?
• Does the buyer need to hire additional management?

21. Operations

Review:

• core operating processes;
• SOPs;
• production or service delivery;
• scheduling;
• quality control;
• purchasing;
• fulfillment;
• inventory management;
• capacity;
• utilization;
• maintenance;
• customer support;
• safety;
• business continuity; and
• operational KPIs.

See Operational Due Diligence for Business Acquisitions for a deeper review.

22. Sales and Marketing

Review:

• sales organization;
• sales compensation;
• pipeline;
• CRM;
• lead sources;
• conversion rates;
• major referral relationships;
• marketing spend;
• digital advertising;
• website;
• organic search;
• social accounts;
• brand assets;
• customer-acquisition processes;
• pricing;
• promotions; and
• historical marketing performance.

Questions to answer:

• Where does new revenue actually come from?
• Which channels are dependent on the seller?
• Are reported pipelines realistic?
• Will marketing assets and accounts transfer?
• What spending is required to maintain current revenue?

23. Technology and IT

Technology risk exists even when the target is not a software company.

Review:

• hardware;
• networks;
• software;
• ERP/accounting systems;
• CRM;
• cloud infrastructure;
• domains;
• email systems;
• licenses;
• third-party vendors;
• contracts;
• system administrators;
• integrations;
• backups;
• disaster recovery;
• access controls; and
• technology roadmap.

For technology-dependent acquisitions, see Technology Due Diligence in Mergers & Acquisitions.

24. Cybersecurity and Data Privacy

Review:

• cybersecurity policies;
• access controls;
• privileged accounts;
• multi-factor authentication;
• endpoint protection;
• backups;
• incident history;
• penetration or vulnerability testing where appropriate;
• cyber insurance;
• data collected;
• sensitive information;
• privacy policies;
• data-processing agreements; and
• third-party data access.

The scope should reflect the sensitivity of the data and the importance of technology to the target.

25. Intellectual Property

Review:

• trademarks;
• patents;
• copyrights;
• domain names;
• proprietary software;
• source code;
• trade secrets;
• designs;
• customer data;
• contractor IP assignments;
• employee invention agreements;
• license agreements;
• open-source software where relevant;
• infringement claims; and
• ownership documentation.

Questions to answer:

• Does the company actually own the IP it relies on?
• Was material IP created by contractors without proper assignment?
• Are key licenses transferable?
• Is any critical technology owned personally by the seller or another entity?

26. Insurance

Review:

• general liability;
• property;
• workers’ compensation;
• professional liability;
• errors and omissions;
• cyber insurance;
• directors and officers coverage where relevant;
• vehicle coverage;
• key-person coverage;
• policy limits;
• deductibles;
• exclusions;
• claims history;
• open claims; and
• coverage that must be replaced at closing.

An insurance advisor can help identify coverage gaps and post-close requirements.

27. Environmental and Safety Matters

Not every acquisition requires extensive environmental diligence.

The workstream becomes more important when the target owns or operates industrial real estate, uses hazardous materials, has manufacturing operations, or otherwise faces environmental exposure.

Potential review areas:

• environmental permits;
• historical site use;
• hazardous materials;
• waste handling;
• contamination;
• environmental reports;
• OSHA or safety matters;
• claims;
• violations; and
• remediation obligations.

28. Industry-Specific Risks

Add a dedicated section for risks unique to the target.

Examples can include:

• healthcare reimbursement and licensing;
• construction bonding;
• government contracts;
• franchise requirements;
• food safety;
• liquor licensing;
• vehicle fleets;
• professional credentials;
• manufacturing quality systems;
• import/export exposure;
• subscription metrics;
• e-commerce platform dependence;
• Amazon or marketplace concentration;
• software revenue recognition; or
• regulated financial activities.

A generic checklist cannot anticipate every industry-specific issue.

29. Financing and Lender Requirements

When outside financing is involved, identify lender requirements early enough for them to affect the diligence plan.

Track:

• lender financial-information requests;
• appraisal requirements;
• collateral information;
• historical financial support;
• projections;
• insurance requirements;
• entity information;
• purchase-agreement requirements;
• borrower equity requirements;
• third-party reports; and
• conditions to closing.

Do not assume a lender’s requirements substitute for the buyer’s own diligence. The lender and buyer are evaluating different risks.

30. Post-Close and Transition Readiness

Due diligence should help the buyer identify what must happen immediately after closing.

Build a list of:

• critical employee retention;
• customer communications;
• supplier communications;
• banking changes;
• payment-system changes;
• insurance changes;
• licenses and permits;
• technology access;
• passwords;
• payroll;
• accounting transition;
• vendor contracts;
• facility access;
• inventory controls;
• seller training;
• management handoff;
• unresolved diligence issues; and
• first-100-day priorities.

How Real DueDilio Projects Change the Checklist

DueDilio project requests show why acquisition diligence should be tailored to the business rather than copied from a standard template.

In one July 2026 home-products e-commerce acquisition, the target generated about 70% of revenue through Shopify and 30% through Amazon. The buyer requested both financial and commercial diligence, while deliberately choosing a narrower financial scope of basic financial verification and proof of cash rather than a full Quality of Earnings engagement. The checklist therefore needed to address both financial-record integrity and channel-specific questions such as marketing efficiency and marketplace dependence.

In a separate July 2026 acquisition of a small portfolio of content websites, the buyer requested financial, operational, marketing, and technology diligence. The requested work included merchant-revenue verification, traffic and SEO analysis, business-process review, domain and content-rights checks, and assessment of the technology setup. For that buyer, reviewing the books alone would not have addressed the core risks.

These are anonymized DueDilio project examples, not a statistically representative sample of all acquisitions. They illustrate a broader principle: the checklist should expand or contract around the risks that could materially affect the buyer’s investment thesis.

How to Prioritize the Checklist

Not every item deserves the same urgency.

Priority 1 — Could change the decision to buy

Examples include:

• inability to verify earnings;
• essential contract transfer problems;
• licensing issues;
• major undisclosed liabilities;
• critical IP ownership problems;
• severe customer concentration; or
• a breakdown in the core investment thesis.

Priority 2 — Could affect price or transaction terms

Examples include:

• lower normalized earnings;
• working-capital adjustments;
• required near-term CAPEX;
• deferred maintenance;
• customer concentration;
• debt-like items; or
• contractual risks that can potentially be addressed in the transaction.

Priority 3 — Primarily a post-close issue

Examples include:

• outdated internal reporting;
• weak SOP documentation;
• software upgrades;
• HR process improvements; or
• operational opportunities that do not materially change the decision to close.

The classification can change as more information is discovered.

Due Diligence Red Flags That Require Follow-Up

The presence of a red flag does not automatically mean the buyer should walk away.

Common issues requiring deeper investigation include:

• financial statements that do not reconcile;
• unsupported add-backs;
• tax returns inconsistent with internal reporting;
• large unexplained deposits;
• declining gross margin;
• recent revenue spikes;
• increasing customer concentration;
• old receivables;
• unusually low working capital before closing;
• slow-moving inventory;
• deferred maintenance;
• expiring leases;
• customer or supplier contracts that require consent;
• licenses that cannot transfer automatically;
• key employees planning to leave;
• owner dependence;
• undocumented IP ownership;
• cybersecurity incidents;
• pending litigation;
• incomplete records; and
• seller reluctance to provide material information.

For each red flag, determine:

What happened? Why? How large is the exposure? Is it recurring? Can it be verified? Can it be mitigated? What does it mean for the transaction?

When Is Due Diligence Complete?

Due diligence is not complete simply because every line in a spreadsheet says “done.”

Before closing the diligence process, material findings should fall into one of five categories:

1. Verified and acceptable
2. Resolved before closing
3. Reflected in valuation or transaction terms
4. Accepted knowingly as a post-close risk
5. Material enough that the buyer should reconsider the transaction

Outstanding questions should remain outstanding until the buyer has enough information to make a deliberate decision.

The Bottom Line

A useful M&A due diligence checklist does two things:

It prevents important areas from being forgotten, and it directs attention toward the risks that actually matter in the transaction.

For small-business acquisitions, that means going beyond a generic corporate checklist. Examine the quality of the financial records, the sustainability of earnings, customers, employees, owner dependence, suppliers, contracts, assets, working capital, licenses, technology, and transition requirements that will determine how the business performs under new ownership.

If a workstream requires outside expertise, you can browse DueDilio’s network of vetted M&A service providers.