Due diligence is the process of verifying that what you think you're buying is what you're actually buying. The checklist below is ordered by what kills small-business deals most often — earnings quality first, paperwork last — and every item pairs a claim with the evidence that proves it. (Both of our deal reviews show why: listings disclose maybe 3 of the 15 facts a buyer needs.)
1. Earnings quality — does the cash flow exist?
- Three years of P&L + the matching bank statements. Profit that doesn't appear as cash deposits isn't profit.
- Rebuild SDE yourself. Audit every add-back; assume "one-offs" recur until proven otherwise.
- Monthly numbers, not annual. Annual summaries hide trends — a flat year can be a strong H1 and a collapsing H2. (The Flippa run-rate trap in our SaaS review lives here.)
- Tax filings vs management accounts. Sellers rarely overstate profit to the tax office.
2. Customers — will the revenue survive the handover?
- Revenue by customer, three years. Anything over 20% concentration changes price and structure (customer concentration).
- Contracts and assignment clauses. A contract that terminates on change of control is worth what the counterparty decides post-closing.
- Churn cohorts for subscription businesses — retention curves, not the word "sticky".
3. Operations — will the machine run without the seller?
- The two-week test. Could the owner disappear for a fortnight mid-process? (Owner dependence.)
- Key staff intentions — quiet conversations, retention bonuses budgeted before closing, not after.
- Asset condition and capex — fleet age, equipment service records; depreciation already spent is your problem now.
- Lease runway — term remaining, renewal options, assignment consent. For premises businesses this is frequently the deal.
4. Legal & regulatory — can the earnings legally convey?
- Licences and permits — held by the company or the person? Transferable or re-application?
- For Singapore deals: work-pass and foreign-worker quota math binds earnings capacity directly — verify headcount ratios against MOM rules (DRC explained for buyers); confirm entity facts against ACRA records.
- Litigation, disputes, unpaid taxes — searches, not seller assurances.
5. Deal structure — price the residual risk
Whatever survives the checks above gets handled in structure, not hope: holdbacks for receivables, earnouts for concentrated customers, transition periods for owner dependence, working-capital pegs so the seller doesn't strip the company bare at closing. Financing diligence runs in parallel — DSCR at your real leverage, on your rebuilt SDE, not the broker's.
Before you spend a dollar on diligence
Screen first. The free calculator prices the deal off the listing's own claims in two minutes and shows which unknowns move the score most — that list is your diligence agenda, prioritised. Then spend the legal and accounting fees on deals that survive the screen.