Due Diligence Service for Small Businesses – The Process & Checklist

#1. Recent Tax Returns

#2. Income Statements Corresponding to the Tax Returns Requested

#3. IRS Form 4506 and/or 4506T to verify Tax Returns filed by the business/owner

#4. General Ledger

#5.  Bank Statements that accompany the Income Statements

#6.  Year to Date (YTD) Income Statements with Current Balance Sheet

#7.  Payroll Records, preferably matching Income Statements Timeframe.

#8.  Customer History Records

#9.  Vendor History Records

#10.  C.A.B.B. Seller Disclosure Statement or equivalent.

#11.  Worker’s Compensation Loss Runs and any past, present, or pending claims.

#12.  Insurance Records, including any and all claims.

#13.  Accrued Vacation Time and Sick Pay owed to Employees at time of Transfer of Possession

#14.  Verify Necessary Permits and Licenses to legally operate the Business Operation

#15.  Standing with the property landlord.

#16.  Non Compete Covenant with Seller(s) and Key employees

#17.  Future Rebates and/or any other promotional offers due to customers.

#18.  Any lump sums future payments due creditors, landlord, financiers, etc.

#19.  Customer complaints of the past, present and pending.

#20.  How long will the seller train the buyer after the close of escrow or Transfer of Possession?

#21.  State of the Work In Process Log.

#22.  Amount and Nature of Customer Deposits Held.

When it comes to doing Due Diligence on the purchase of a small business, it is important to recognize that every business is different and you will need to figure out which are the most important items in your situation.  With that in mind, the above are some basics to have in your checklist.  Remember, not all of these may apply to your particular situation, and your situation will require specific focus.  For a consultation contact our office to discuss your situation.  Buying a small business has long term ramifications, and many decisions have to be made in a short amount of time that can alter your purchase in radical ways.  Arm yourself with the information to make better informed decisions.  We can help you make smart, well informed choices.

For more information about Due Diligence Services Contact our Client Care Manager, Sonia Chhabra, at (888) 926-9193 or by email cs@justelementary.com

Disclaimer:  this list is not complete, it is not necessarily in order of importance and since every situation is unique and you are investing a lot of time and money, you are advised to always consult legal & financial professionals when doing due diligence on a business or investment opportunity.