business checklist

Buying an Existing Business Checklist: Due Diligence Guidance

Feb 08, 2022

If you plan to purchase an existing business, you need to conduct a detailed review of the company’s financials, intellectual property, and other key assets (and potentially liabilities). A checklist for buying a business can facilitate this process, particularly if you’re a new entrepreneur. You want to understand why the owners have decided to sell the business and whether it could be a profitable opportunity. Due diligence will also help you confirm the fair market value of your transaction. As you proceed through the due diligence process, use this buying a business checklist template to ensure a comprehensive approach.

Financial information

For the first step in your buying an existing business checklist, plan to review financials for at least the past three years with the company’s chief financial officer. Items to analyze include:

  • Audited financial statements with the auditor report, including balance sheet, income statement, and cash flow statement
  • Product, real estate, and equipment inventory and valuation
  • Detail of accounts payable and receivable
  • Profits and rate of return by product and service line
  • Gross and net profit margin analysis
  • General ledger
  • Fixed and variable expense analysis
  • Detail of all outstanding debts and liabilities with associated terms
  • Business credit report
  • Tax returns
  • Strategic growth plans, capital budgets, and all financial projections

You should also make sure you understand the company’s internal control procedures, along with methods used for general accounting, amortization, and depreciation.

Business structure and operations

Items to review and verify in this category include:

  • Formation documents, such as Articles of Incorporation
  • Registration documents for all assumed names of the business
  • Bylaws
  • Meeting minutes
  • Organizational chart
  • List of shareholders and their holdings in the business
  • Agreements about profit sharing, securities, options, voting, and related areas
  • Documentation from the state of incorporation, including a certificate of good standing, annual reports, and status reports
  • Details about geographic locations where the business has employees, clients, or property holdings
  • Restructuring and recapitalization documents
  • Information about existing subsidiaries, if applicable
  • Details about key subcontractors and suppliers
  • Customer concentration/diversification analysis
  • Board member biographies, if applicable

Workforce and payroll

This part of the taking over a business checklist requires detailed consideration of:

  • Compensation for employees, including directors and officers
  • The full employee benefits package
  • Bonuses and/or incentives, particularly those provided at the management level and above
  • Employee manuals and policies
  • Job descriptions
  • Employment agreements, along with severance agreements where applicable
  • Consulting contracts
  • Signed nondisclosure, noncompetition, and collective bargaining agreements
  • Recruitment drives, including incentives, if applicable
  • Employee records, including performance reviews and disciplinary proceedings
  • Information about employees currently on extended leave and/or covered by workers’ compensation, disability insurance, or a program such as the Family and Medical Leave Act

You should also thoroughly review the background of both the CEO and CFO. If possible, meet with these individuals and get to know them personally if you plan to retain them going forward.

Physical assets and real estate

For this portion of the buying a small business checklist, you should obtain and carefully review:

  • A full inventory of fixed business assets, along with their location and value, as well as description and condition
  • UCC filings related to real estate and other physical assets
  • Equipment leases, if applicable
  • Details about capital equipment sold or bought in the past 36 months
  • Real estate mortgages, deeds, and leases
  • Title documentation and protocol
  • Land use and zoning surveys 
  • Zoning approvals, use permits, and variances
  • Vehicle and trailer titles
  • Property tax summaries

Health and safety

You’ll need to conduct a thorough survey of the business environment. Items to consider in this category include:

  • Environmental violations or citations, along with details about mitigation efforts
  • Policies for handling hazardous materials, if applicable
  • Emergency response procedures
  • Copies of health and safety audits
  • Details about workplace accidents 
  • Workers’ compensation claims and associated costs
  • Material safety data sheets, if applicable

During the legal section of the how to buy a business checklist, be sure to review and verify these items:

  • Current, pending, or settled lawsuits initiated by or against the company
  • Outstanding IRS or government proceedings, such as an audit
  • Business reputation and client reviews
  • Terms and conditions of existing warranties on the company’s products and services
  • Existing contracts with vendors, suppliers, clients, partners, and other stakeholders
  • Potential risks for the company
  • Franchise agreements
  • Copies of all business insurance policies, along with documentation about any outstanding claims

Intellectual property

The business takeover checklist also requires a comprehensive review of the company’s intellectual property assets. Items in this category include:

  • Full inventory and valuation of intellectual property assets
  • Information about all company-owned domains, websites, and apps
  • Details about existing trademarks, patents, and pending patents
  • Information about copyrights owned by the company
  • Protocol for developing, documenting, and protecting trade secrets and other IP assets
  • Customer information, including marketing personas
  • Client lists and databases
  • Marketing plans, including risk and opportunity analysis in this realm
  • All marketing and advertising materials, including but not limited to product descriptions, sales sheets, presentations, and brochures
  • Current research and development projects, including budget and timeline
  • Third-party intellectual property agreements, such as trademark licensing information

Information technology also falls under the umbrella of IP for most companies. Make sure you understand the capacity of the business’s existing tech systems, current software tools along with licensing information, help desk procedures, annual IT expenses, and protocol for information security and disaster recovery. 

Depending on the size of the business you plan to purchase and other factors, completing the full buying a business checklist could take between six weeks and six months—or even longer for a more complex undertaking. This guide will keep you on track during this all-encompassing process, creating peace of mind about a successful transaction and a lucrative future for your business.

  1. About the Author:

  2. About the Author:

    As a Principal at Valesco, Angie Henson serves in key roles related to new investment origination, portfolio management, and investor relations. She directs the firm’s strategic acquisition planning and program management as acting head of research and business development operations since 2002. Angie holds a Bachelor of Science from Tarleton State University and a certificate in entrepreneurial studies from Southern Methodist University.

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