Due Diligence Checklist
Once you agree to purchase a business and have a contract, your accountant (CPA) will need certain documentation to determine if the business you are buying is earning what the seller represents:
- Tax Returns for Three Years.
- Profit & Loss statements through the Prior Year End, Current Year to Date P&L & Prior Year to Date P&L for the same period.
- Bank Statements Prior Three Years, plus Current Year to Date.
- Sales Tax Returns for past Three years.
- General Ledger for the past Three Years.
- Copy of a Lease.
- 940’s & 941’s payroll tax for the past Three Years.
- Employee list/job function/rate of pay.
- Copy of insurance policies if any.
- Equipment list.
- Tangible Tax Returns for the past Three Years.
If the business is a cash business, you will need to see: purchase invoices, sales invoices and register tapes. Tax return numbers are generally considered to be more accurate. In some cases the business may actually be earning more than the tax return shows.Generally two to four week’s will be needed for Due Diligence.
For the Due Diligence on a Cash Business, list would include:
- Register tapes for the past Three Years plus Current Year to date.
- COGS Invoices for the past Three Years plus Current Year to date.
- Two weeks observation (daily sales by buyer).
- Cash expenses; like payroll & COGS for the past Three Years.