Diligence is the process of checking that what you were told is true, and finding what you were not told. Work in order of what would kill the deal, so you find the fatal problems before spending on the expensive checks.
Financial
- Tax returns reconciled to bank statements for three years.
- Revenue by customer and month; find the concentration and the seasonality.
- Accounts receivable ageing — how much of that revenue actually gets collected.
- Payables, debts, leases, and anything you would inherit.
Operational and legal
- Customer contracts: do they survive a change of ownership, or need consent?
- Staff: who is essential, what are they paid, what have they been promised?
- Supplier terms, licences, permits, and any pending disputes.
- The systems: what is written down, and what only the owner knows?
The question people forget to ask
Talk to customers where the deal structure allows it. Ten conversations will tell you whether they buy from the business or from the owner personally — which is the single fact that most often decides whether an acquisition works.
This is the stage for professionals: an accountant on the numbers, a lawyer on the agreement. Their fees are small relative to the mistake they prevent, and neither this lesson nor any course replaces them.
Try it
Build your diligence checklist in order of deal-killing potential, with who checks each item and by when. Anything you cannot verify becomes either a price adjustment or a walk-away.