Due diligence checklist for selling a business: what a buyer will ask for

A due diligence checklist for selling a business covers what the buyer checks in the six to twelve weeks after a letter of intent. It runs from three years of financial statements and tax returns, through customer revenue and contracts, to the minute book and any litigation. A business with these in one folder moves through in six weeks.

What due diligence is for

This due diligence checklist for selling a business follows the order in which a buyer’s request list arrives. After a letter of intent is signed, the buyer and their accountant and lawyer check everything you have told them against the documents. It takes six to twelve weeks. Six is a business whose documents were in a folder before the buyer asked, and twelve is one answering each request from scratch.

Expect a request for every item below. Work through the list as a checklist, and tick an item once its document is in the folder and agrees with the rest.

Financial

• Financial statements for the last three years, and the accountant’s report on each.
• Tax returns for the same years, and the notices of assessment. The buyer will check that the statements and the returns agree.
• Monthly management accounts for the current year, and the same months last year.
• The schedule of adjustments from profit to adjusted earnings, with the evidence for each add back. SDE vs EBITDA shows how that schedule is built.
• Aged receivables and payables, showing who owes you, for how long, and whether they will pay the new owner.
• Bank statements for the last year, reconciled to the books.
• Inventory, counted and valued, with the slow moving stock identified.
• Any debt, lease financing or personal guarantees, with the payout figures, including any CEBA balance due at the end of 2026.

Customers and revenue

• Revenue by customer for three years, so the buyer can see concentration and churn. A business that exports will also be asked for revenue by country, as the piece on tariffs and a business sale sets out.
• Contracts with the top customers, and whether they can be assigned or need consent on a change of control.
• Pricing, discounts and any terms that differ from the standard.
• The sales pipeline, if there is one, and the quotes still awaiting a decision.

Operations and assets

• A list of equipment and vehicles, with ages, condition, and whether owned or leased.
• The lease on the premises, its term, its renewal rights, and whether the landlord must consent to an assignment.
• Supplier agreements and any supplier the business depends on. For an insurance brokerage these are its contracts with insurers, which a buyer reads for a change of control clause.
• Licences, permits, registrations and certifications, in the corporation’s name and in good standing. An Ontario child care centre also writes to its program advisor at least 30 days before closing.
• Insurance policies and the claims history.
• Systems and software, and who holds the passwords.

People

• A list of employees with start dates, roles, pay and benefits, with names held back early in the process.
• Written employment agreements, where they exist, and the terms of any unwritten ones.
• Any bonus, commission or retention arrangements.
• Contractors who are really employees, which is a tax exposure the buyer will find.
• Payroll remittances up to date, and the confirmation.

Legal and corporate

• The minute book, with the articles, shareholder register and resolutions up to date. On a share sale this is the first thing the buyer’s lawyer opens.
• Any shareholder agreement, and the rights it gives other holders on a sale. Selling a business with a partner explains the usual ones.
• Litigation, claims and disputes, current or threatened, and the lawyer’s view of each.
• Environmental matters, if the business handles anything that could be one. A plant on land the company owns is likely to meet a Phase I site assessment, described in selling a manufacturing business.
• Intellectual property, such as trademarks and domain names, and whether the corporation owns them or you do. A software company is also asked for written assignments from the contractors who wrote its code, as selling a software or IT company explains.

What the buyer is checking against

Each document is compared with something else, and the table shows the usual pairs. The buyer is reconciling one record with another, so a document that matches its partner passes quickly.

That is why the fastest diligence belongs to the business whose documents already agree with each other. A discrepancy rarely ends a deal, but each one costs about a week and gives the buyer a reason to reopen the price.

How to prepare the folder

1. 01Build it a year before market, as part of preparing the business for sale. Most of the documents exist; the work is finding them.
2. 02Have your accountant reconcile the statements to the returns and write the add back schedule.
3. 03Have your lawyer bring the minute book up to date and read the lease.
4. 04Put it all in one place, indexed the way this list is, so each request is answered with a link.
5. 05Redact what should be redacted at each stage. Customer names go to the buyer after the letter of intent is signed, in the order set out in selling a business confidentially.

This is a general list for an owner operated business. A buyer’s request list will be longer and specific to your industry, and every item on it should already be familiar.

Diligence is one stage of six. How long it takes to sell a business shows where it falls in the timetable.

Questions owners ask

What documents are needed for due diligence when selling a business?

The core set is three years of financial statements and tax returns, current year monthly accounts and the add back schedule. A buyer also asks for receivables and payables, bank statements and revenue by customer, then the customer and supplier contracts, the lease and an equipment list. Employee terms and payroll records come next, with licences, insurance, the minute book and details of any litigation.

How long does due diligence take for a small business?

Due diligence on a small business takes six to twelve weeks. The difference is almost entirely whether the documents are ready and agree with each other before the buyer asks. Every discrepancy the buyer finds costs about a week and gives them a reason to revisit the price.

When should customer names be disclosed to a buyer?

Customer names go to the buyer after the letter of intent, in diligence, when exclusivity means there is one buyer. Before that a buyer sees revenue by customer with the names removed. The most sensitive details, such as contracts and pricing, are shown last.

How do I use a due diligence checklist before selling?

Build the folder about a year before going to market and tick each item once its document is filed and agrees with the others. Have your accountant reconcile the statements to the tax returns and your lawyer update the minute book, so the buyer’s requests are answered with links.