Sell-Side Due Diligence Checklist

Financial documents

These are the first documents any buyer will request and the most scrutinized:

• Three years of profit and loss statements — monthly preferred, quarterly acceptable
• Three years of business tax returns — federal (1120S, 1065, or Schedule C depending on entity) and state
• Most recent balance sheet — within the last 90 days
• Trailing twelve months (TTM) P&L — if selling mid-year, current performance matters
• EBITDA add-back schedule — a formal document listing every adjustment to net income and the rationale for each (owner comp above market, personal expenses, one-time items, depreciation, amortization)
• Accounts receivable aging report — current, showing what's outstanding and how old
• Accounts payable aging report — current, showing what's owed and to whom
• Bank statements — 12 months, showing actual cash flow
• Payroll records — employee count, total payroll, and payroll tax filings (940, 941)
• Monthly revenue report — last 24–36 months, showing seasonality and trend
• Revenue by customer or client — trailing 12 months, showing top 20 customers by revenue

What buyers are looking for in financials:

• Consistency between P&L, tax returns, and bank statements
• Normalized margins (not inflated by owner salary below market or deflated by above-market owner comp)
• A clear story of revenue trend — growth, stability, or a decline that's explained

Legal documents

Buyers want to understand what the company owns, what it owes, and what contracts or obligations transfer at close:

• Business formation documents — articles of incorporation/organization, operating agreement, bylaws
• Cap table or ownership schedule — who owns what, and confirmation there are no undisclosed stakeholders
• All customer contracts — particularly any over $25,000/year in annual revenue; buyers want to review change-of-control provisions
• All supplier and vendor agreements — especially if any have exclusivity, volume commitments, or termination for assignment provisions
• Real estate leases — full lease documents for all occupied locations, including any amendments or side letters
• Employment agreements — for key employees, particularly any non-competes, severance obligations, or equity promises
• Independent contractor agreements — for any regularly used 1099 contractors
• Any existing non-compete or non-solicitation agreements — from prior employees or former owners
• Pending or threatened litigation — written description of any legal disputes, along with counsel's assessment
• Government permits and licenses — any licenses required to operate the business, with expiration dates
• Intellectual property registrations — trademarks, patents, copyrights with registration numbers and renewal dates

What buyers are looking for in legal documents:

• Clean ownership without complexity or disputes
• Contracts that are assignable (or where consent is obtainable)
• No undisclosed liabilities

Operational documents

Buyers are evaluating whether the business can run without the current owner and whether what they're buying will continue to work post-close:

• Organizational chart — current team structure with names, roles, and reporting relationships
• Employee roster — all employees with start date, role, compensation (salary + bonus + benefits), and full-time vs. part-time status
• Key employee identification — which employees are critical to operations, and what is the risk of departure post-close
• Customer list with history — top customers, revenue by customer for last 24 months, tenure, and any known relationship risk
• Churn or attrition data — how many customers or contracts were lost in the last 12 months and why
• Standard operating procedures — documented processes for core operations (not required, but a significant positive signal if they exist)
• Technology and software — list of all software used, subscription costs, and whether any have change-of-control provisions
• Equipment and asset list — all significant physical assets with approximate values and condition
• Fleet inventory — if applicable: year, make, mileage, condition of all vehicles
• Insurance certificates — current coverage levels for general liability, workers compensation, professional liability, and any other coverage

What buyers are looking for operationally:

• The business can function without the owner
• Customer relationships are institutionalized, not personal
• Physical assets are in reasonable condition without immediate capex needs

Industry-specific documents

Depending on your industry, buyers will request additional documentation:

Home services (HVAC, plumbing, electrical, landscaping):

• Service agreement or maintenance contract roster with active count, annual value, and renewal rate
• Technician certifications (EPA, NATE, state licenses)
• Vehicle inspection records and fleet maintenance logs

Healthcare and professional services (dental, optometry, veterinary):

• Payor mix breakdown (commercial insurance, Medicare/Medicaid, self-pay)
• Insurance credentialing status for practitioners
• Patient count and retention statistics
• Any state or CMS compliance items

Property management:

• Full door count by property type (SFR, multi-family, commercial)
• Management agreement roster with contract type and expiration dates
• Annual door churn data
• Owner concentration analysis

Technology and software (MSPs, SaaS):

• ARR/MRR breakdown by customer
• Churn rate and net revenue retention (NRR)
• Customer concentration analysis
• Technology stack documentation

Food and beverage, retail:

• Inventory value and condition
• Supplier relationships and any exclusivity arrangements
• Point of sale data showing transaction count and average ticket

How to organize your data room

A well-organized data room communicates professionalism and confidence. Disorganized document delivery — PDFs with inconsistent naming, folders with files from years ago mixed with current documents — creates friction and doubt.

Recommended structure:

01-Financials/

01a-Tax Returns (3 years)

01b-P&L Statements (monthly, 3 years)

01c-Balance Sheets

01d-Bank Statements (12 months)

01e-AR and AP Aging

01f-EBITDA Add-Back Schedule

02-Legal/

02a-Formation Documents

02b-Customer Contracts

02c-Supplier Agreements

02d-Leases

02e-Employment Agreements

02f-Licenses and Permits

02g-IP Registrations

03-Operations/

03a-Org Chart

03b-Employee Roster

03c-Customer List

03d-Asset and Equipment List

03e-Insurance Certificates

04-Industry-Specific/

(Varies by business type)

Tools: Google Drive and Dropbox work fine for smaller transactions. For deals over $2M, a formal virtual data room (Firmex, Datasite, Ansarada) provides access logging and permission control that larger buyers expect.

Naming convention: Consistent, descriptive file names. "2024-Federal-Tax-Return.pdf" not "taxes-final-v3.pdf". Buyers or their advisors may reference these documents in their reports — clean naming reduces confusion.

What to disclose proactively (and why)

The instinct to hide problems until buyers find them in due diligence is understandable but counterproductive. A problem discovered by a buyer mid-diligence — rather than disclosed upfront — triggers renegotiation, and buyers will extract a larger price reduction for a discovered problem than a disclosed one.

Disclose proactively:

• Any customer that represents more than 20% of revenue and any known risk to that relationship
• A lawsuit or claim that has been filed or threatened, even if you believe it's meritless
• A key employee who has expressed any interest in leaving
• Environmental issues with the property (past or present)
• Any regulatory compliance gap you know exists
• Prior owner draws or perks that are not fully documented

The legal principle at work: Most purchase agreements include seller representations and warranties — legal statements about the accuracy of the information you've provided. Undisclosed material issues discovered post-close can result in indemnification claims against you. Disclosure before signing protects you; concealment creates liability.

Practical approach: Have a disclosure schedule conversation with your M&A attorney before you begin due diligence. A qualified attorney can help you determine what needs to be disclosed and how to frame it in a way that is accurate without being unnecessarily alarming to buyers.