Preparing For The Due Diligence Process

By: Brian Macmillan | Managing Director Mergers & Acquisitions

When selling a business, the due diligence process can be long and tedious. In some cases, the amount of time involved and the amount of information requested by a buyer and its advisors can cause a business owner enough stress that it causes the deal to fall apart. However, there are ways to minimize the time involved in the due diligence process. Understanding the types of questions that will be asked of a business owner and the information the buyer will request is crucial. This will allow business owners to prepare for the due diligence process long before they get to this stage in the sale of their business.

The due diligence process begins after the signing of the Letter of Intent between the buyer and the seller. At this point, the buyer has seen financial statements and has a solid understanding of the business and its customers. Buyers work with banks or other financing entities (i.e. private equity firms) in order to obtain the capital to make the acquisition, and those third parties become more involved at this stage. Due diligence will provide the buyer and its advisors with enough information to provide the level of comfort required for them to complete the transaction. It typically takes 30 – 60 days from the time the Letter of Intent is signed until the due diligence is completed.

Buyers should submit to the seller a Due Diligence Checklist — a comprehensive list of information they want to review during the due diligence process.

There may be some additional requests from the buyer, based on information provided. By having the majority of the requested information readily available, the seller can speed up the due diligence process and give the buyer added comfort in knowing that the seller is organized. Full disclosure during this process is paramount as well.

Depending on the size of the selling business, the length of the due diligence request list may vary. Below, are several of the main categories by which the Due Diligence Checklist can be sorted and some of the most commonly requested information within each category.


• Certificates or Articles of Incorporation, as well as any Bylaws and amendments
• Minutes of all meetings and written consents of the board of directors and stockholders
• List of all states and foreign countries where property is owned or leased and where business activity is conducted


• The company’s stock books
• List of all current stockholders, including their addresses, number of shares owned, and dates of issuance


• Financial Statements (audited, reviewed, or compiled depending on the size of the company) for at least three years
• The most recent internal financial statements and comparable statements for the same time period during the prior year
• Projections and budgets
• Asset lists, including description of depreciation and amortization methods
• Schedule of inventory
• Schedule of all debt and other contingent liabilities
• Schedule of accounts receivable and accounts payable


• Copies of federal, state, and local income tax returns for at least the last three years
• Any IRS audit reports
• Any tax liens


• Schedule of fixed assets and their locations
• U.C.C. filings, equipment leases, schedule of sales and purchases of major capital equipment


• Schedule of copyrights, trademarks, and trade names
• Schedule of patents and patent applications
• Schedule of any claims (actual or threatened) regarding the intellectual property


• List and detailed descriptions of all products or services sold or offered by the company


• Schedule of all of the company’s customers
• Any customer agreementsor service agreements
• Summary of revenue by customer, detailing any customer concentration issues


• Copies of all leases, deeds, mortgages, titles, surveys, zoning approvals, variances or use permits
• Any environmental audits


• Copies of all contracts between the company and any officers, directors, or affiliates
• All loan agreements/arrangements or other promissory notes
• All indentures, collateral pledges, and guaranties
• Distribution agreements
• Sales representative agreements
• Any non-disclosure or noncompete agreements
• Marketing agreements
• Agreements with suppliers
• Copies of standard quotes, purchase orders, invoices, and warranty forms
• Copies of any governmental licenses, permits or consents


• Schedule of the company’s insurance claims history for at least the past three years
• Copies of all of the company’s insurance policies, including general liability, worker’s compensation, property, product liability, errors and omissions, and any and other insurance


• All employment and consulting agreements
• List of employees, including date of hire, positions, salaries, and bonuses
• Copy of the personnel handbook
• Schedule of all employee benefits and holiday, vacation, and sick leave policies
• Descriptions of any retirement plans
• A list of any alleged wrongful termination, harassment, or discrimination cases
• Worker’s compensation and unemployment insurance claims history


• List of any professional service firms used by the company, including accounting firms, law firms, and consulting firms


• List of environmental permits and licenses
• Copies of any notices from federal, state, or local regulatory agencies
• List of any hazardous substances used in the company’s operations


• List of any pending or threatened litigation
• Copies of any documents related to any prior settlements

This list is not comprehensive, and all companies will have information requests specific to their particular industries. However, any business owner can look at the list above and understand how time consuming it may be to gather all of this information. Planning ahead and having this information compiled prior to the signing of the Letter of Intent will save time and could ultimately save the deal. If you own a business and are interested in reviewing a sample Due Diligence Checklist, please contact the Mergers & Acquisitions team at BWFA.