Due Diligence Checklist for Selling a Business
A due diligence checklist is an in-depth look at the extensive documentation, research and planning that is necessary to prepare a business for sale. Buyers are encouraged to follow this checklist to analyze every important detail of the company. Sellers should follow this checklist to determine if they meet all of the conditions for sale.
What Questions & Tasks Does the Selling a Business Due Diligence Checklist Include
Legal Issues
ITEMS IN legal issues Due Diligence INCLUDE:
Review all business licenses, contracts and agreements
Review settled, pending and potential litigation
Review the company's rules, regulations and compliance plans
Look over budget reports and business plans
Verify that the seller has obtained all of the necessary business permits and licenses
Assets
ITEMS IN assets DUE DILIGENCE INCLUDE:
Review the complete documentation of the company's current and fixed assets from the past five years
Review all accounting records, including income, balance and cash flow statements
Verify the accuracy of all financial statements
Obtain a list of all business plants, property and equipment
Review stock plans and agreements
Check the validity of accounts receivable
Verify the validity of all intellectual properties
Review past, current and potential copyright / infringement claims
Evaluate the efficiency of information security and technology systems
Property
ITEMS IN property DUE DILIGENCE INCLUDE:
Review the full terms and conditions of property usage
Obtain and review property leases
Collect information on company’s COBRA.
Conduct an inspection of all lands and properties
Prepare an environmental audit of the business land and property
Make inspections of electrical, structural, mechanical and plumbing systems of buildings
Evaluate the cost and efficiency of warehouse and production facilities in meeting customer demands
Determine the level of competitiveness with similar facilities
Inquire into plans for opening or closing facilities
Suppliers / Manufacturing
ITEMS IN supliers and manufacturing DUE DILIGENCE INCLUDE:
Discuss current and potential contracts with suppliers
Discuss current and potential contracts with manufacturers
Determine the storage sites of raw materials
Determine the methods of disposal for hazardous and non-hazardous waste
Review the compliance plans with local, state and national environmental laws
Determine the level of compliance with import / export laws
Discuss current and potential contracts with suppliers
Discuss current and potential contracts with manufacturers
Products / Inventory
ITEMS IN products / inventory DUE DILIGENCE INCLUDE:
Examine all products based on age, condition, design and functions
Review product plans currently in development
Review product warranties
Arrange to purchase the seller's closing inventory item by item
Conduct a physical audit of closing inventory
Liabilities
ITEMS IN liabilities DUE DILIGENCE INCLUDE:
Verify that the seller has filed all tax returns and paid all past and current taxes
Review tax returns, audits, liens and disputes from the past five years
Evaluate current and future changes in tax laws
Determine current and future tax liabilities
Obtain a list of past and existing creditors with the names, dates, interest charges, total amounts borrowed and due
Review all loan and credit agreements
Review active insurance contracts and policies
Evaluate past, current and potential insurance claims
Sales and marketing
ITEMS IN sales and marketing DUE DILIGENCE INCLUDE:
Evaluate the level of competition with local, statewide and national competitors
Evaluate future research and development plans
Evaluate future industry growth and evolving marketplace trends
Review fluctuations in interest, inflation and economic growth
Review customer relationship management policies, such warranties, cancellation agreements, etc
Review sales contract and agreement forms
Evaluate the efficiency of the sales and marketing professionals
Determine the sales reports of all products and services
Management
ITEMS IN management DUE DILIGENCE INCLUDE:
Obtain a list of all managers / supervisors
Evaluate their positions and levels of experience within the company
Check all business transactions between managers and third parties for fairness and accuracy
Human resources
ITEMS IN human resources DUE DILIGENCE INCLUDE:
Obtain a list of current employees and/or independent contractors
Obtain employee rules of conduct handbooks and safety policies
Determine which employees should stay with the company
Review past employee disputes and future problems
Review employee and/or independent contractor agreements
Review employee health insurance and retirement plans
Obtain a list of employee grievances and complaints
Evaluate policies about labor unions
Check for pending labor disputes or lawsuits
Review workplace accidents and/or worker's compensation claims in the past five years
Obtain documents and/or videos of new hire orientation and training sessions
Review policies about sick days, paid holidays, paid vacations and overtime pay
Review policies about bonuses, incentives, commissions and deferred compensation
Evaluate emergency training and recovery plans
Sale of business
ITEMS IN sale of business DUE DILIGENCE INCLUDE:
Review conditions precedent to buyer's obligations
Review conditions precedent to seller's obligations
Arrange the transfer of ownership of all assets and documentation to buyer
Create and review validity of Business of Sale Assets agreement with seller
Review that all terms and conditions are met in agreement
Verify consent of all third parties involved in the agreement
Verify that tangible assets are insured and in good working condition
Verify that the seller is not violating the law or has any pending lawsuits
Make payments for the purchases of assets
Verify receipt of assets and documentation at closing of sale
Seller Documents Needed to Sell Your Business
Legal documents
Permits and Licenses
Sale of business
Business purchase agreement
Joint venture or partnership agreement
Assignment of partnership agreement
Trademark assignment agreement
Accounting records
Assets
Liabilities
Owner's Equity (Total assets minus total liabilities)
INCOME
Income statements: Overview of the company's income, profits and expenses during an operating cycle
Bank statements: Statements of checking and savings accounts at banks
Cash flow statements: Overview of changes in the company's cash flow
Cash flow from operations
Raw materials
Merchandise purchases
Inventory
Advertising
Shipping
Interest payments
Cash flow from investing
Cash flow from financing
Operating business
Profits
Sales invoices
Sales reports
Expenses
Costs of goods sold
Labor
Materials
Overhead costs
Selling expenses
General and administrative expenses
Professionals' salaries
Legal expenses
Rent and utilities
Supplies
Insurance
Depreciation of workplace equipment and buildings
Research and development expenses
Non-operating business
Other profits: Additional revenue gained from secondary business activities
Other expenses: Additional expenses accrued from secondary business activities
Finance costs: Costs of doing business with creditors
Income tax expenses:
Current taxes payable
Deferred taxes payable
Discontinued operations: Fixed assets held for sale but not consumed by the business
Annual reports: Yearly reports of the company's activities and progress
Audit reports
Human Resources
Employment contract
Non-disclosure/confidentiality agreements
Non-compete agreements
Independent contractor agreement
Leave of absence agreement
Benefits plans
Retirement / 401(k) plans
Bonus / incentive agreements
FAQ
Can I change requests in this checklist or add new ones?
Does this questionnaire provide all the necessary due diligence information?
This selling a business due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.
Easily Collect Data Using this Due Diligence Template for Selling a Business in DealRoom
This selling a business due diligence template can be easily downloaded and utilized as just the Excel sheet. However, it is most effective when paired with DealRoom’s dynamic due diligence software. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers analytics, security features, and customized help to streamline the process. We are confident that with DealRoom you can close deals up to 40% faster.
HOW TO USE THE TEMPLATE WITH DEALROOM:
Download the due diligence template from DealRoom’s website
Open a room within DealRoom
Go to the Requests tab and select “import”
Import the downloaded template
The Requests tab is automatically populated with the requests from the due diligence template. Users can begin assigning, adding to, and completing due diligence requests.