Due diligence questions to ask when buying a business
Short answer
Good due diligence questions are specific and ask for documents, not opinions: "Please provide 24 months of bank statements for all accounts" gets further than "Are the numbers accurate?" Group questions by area (finances, customers, employees, operations, legal), send them in writing so answers are on record, and follow up on anything vague. Seller answers can later back representations in the purchase agreement.
The questions below are written so they can be pasted into a request list. Each asks for evidence. Use them alongside the due diligence checklist.
Finances
- Please send 24 to 36 months of bank statements for every business account. Why: proof of cash.
- Please send three years of filed business tax returns and sign IRS Form 4506-C (IRS transcript request) if the lender asks. Why: returns vs P&L.
- Please send monthly P&Ls for the same period and a trailing twelve months. Why: trend and seasonality.
- For each add-back, please provide the invoice, statement or payroll record. Why: solid vs unsupported add-backs.
- Are any revenues or expenses run through other entities or personal accounts? Why: completeness.
- Please list all debts, liens and leases. Why: what must be paid off at closing.
Employees
- Please provide a staff list with role, pay, start date and classification.
- Who would be hardest to replace, and do they know about the sale?
- Are there any written agreements, bonuses, accrued PTO or disputes?
Operations
- What do you personally do each week? Please list tasks and hours.
- Please send the equipment list with age and condition, and any maintenance you've deferred.
- Who are the key suppliers, and are there written agreements?
Legal and compliance
- Please send the lease and any amendments.
- Please list all licences and permits, and who holds them.
- Is there any current, threatened or past litigation, audit or regulator inquiry?
- Has the business had any tax notices or penalties?
Vague answers are a signal; see red flags.
Questions to ask when buying a business (and what the answers tell you)
In your first meetings with a seller, ask about why they're selling, what they do each week, where customers come from and who they're loyal to, staff and who's essential, how money comes in and goes out, the lease and building, and what keeps them up at night. Listen for specific, consistent answers. Vague or shifting answers aren't proof of a problem, but they tell you where to dig in diligence.
Save detailed document requests for diligence; these questions are about understanding the business and the seller.
Early seller meetings aren't interrogations. The seller is deciding whether to trust you with their life's work, and you're deciding whether the story holds together. Good questions do both jobs.
The questions, by topic
| Topic | Ask | A good answer sounds like | Dig deeper if |
|---|---|---|---|
| Why selling | Why now? What will you do next? | Specific, personal reasons; plans after the sale | Vague, or the story changes |
| Owner role | Walk me through a normal week. | Mostly managing; staff handle daily work | Seller does sales, service and books personally |
| Customers | Who are your top customers? How did you win them? | Many customers, varied sources | A few big customers who are personal friends |
| Staff | Who would you hire back first if they left? | Names, roles, tenure, they're staying | "Everyone's replaceable" or key person leaving |
| Money | How do customers pay? What happens in slow months? | Clear process, consistent with seasonality | Lots of cash, no clear deposit routine |
| Costs | What costs went up most in the past two years? | Specific and explained | "Nothing, really" |
| Lease | How long is left? Have you talked to the landlord? | Long term, good relationship | Short term, uncertain renewal |
| Equipment | What needs replacing in the next few years? | Honest list | "All good" despite old equipment |
| Competition | Who do you lose customers to? | Knows competitors well | Claims no competition |
| Worries | What would you fix if you were staying? | Thoughtful, specific | Nothing, or defensive |
| Add-backs | Which costs won't continue for a new owner, and how do you know? | Specific items with records | Large, round numbers with no detail |
| Transition | How long will you help after closing? | Clear commitment | Wants to leave immediately |
How to run the meeting
- Listen more than you talk. Sellers reveal more when they're telling stories.
- Take notes, and compare answers across meetings and with the CIM.
- Don't argue about price or add-backs yet.
- Ask the broker the same factual questions separately.
For warning signs, see red flags.
Customers and revenue
- Please send revenue by customer for the last three years and year to date. Why: concentration and trend.
- Which customers have reduced orders, renegotiated or left in the last two years, and why? Why: early warning of a decline.
- Do any customers have the right to cancel on a change of ownership? Why: revenue at risk on closing day.
- Are there any customer deposits, prepaid services, gift cards or warranties outstanding? Why: obligations you'll deliver without being paid.
- What were refunds, credits and write-offs each year? Why: revenue that didn't stick.
- Please send contracts for the top customers, including notice and assignment terms. Why: whether they can leave, and whether the contract moves to you.
- Have prices changed in the last two years, and are any increases planned? Why: recent increases may not have been tested on renewal.
Worked example: one answer, three follow-ups
Illustrative exchange, not a real deal
You ask for revenue by customer. The seller sends a list showing the top customer at 18% of revenue. Follow-up one: "Please send that customer's invoices and payments for 24 months" (does the 18% hold month by month, or was there one big order?). Follow-up two: "Is there a written agreement, and what notice can they give?" Follow-up three: "Who at the business deals with them, and do they know about the sale?" Each answer either confirms the number or changes the deal. Good diligence questions come in chains like this: a document, then the questions the document raises.
How to run the question list
Send questions in writing, numbered, in one list grouped by area, with a date you'd like answers by. Track answers in a simple table: question, date asked, document received, open issues. Ask the broker to confirm when documents are uploaded. Repeat important questions in person and compare the answers. When an answer changes, note it; it isn't always bad news, but it's always worth understanding.
Questions about the seller's role
- What do you do each week that nobody else can? Why: these tasks become your job, or a hire.
- Which customers, suppliers or lenders deal only with you? Why: relationships that may not transfer.
- Do you hold any licence, certification or bonding the business depends on? Why: it may have to be replaced before closing.
- How long will you stay after closing, and doing what? Why: the transition plan, and under SBA rules, limits on a seller staying on.
- Are any family members on the payroll, and what do they do? Why: pay that may need replacing at market rate, or removing.
Questions about assets and premises
- Please send the equipment list with ages and the last major repair for each. Why: replacement costs you inherit.
- Is any equipment leased, financed or owned by someone else? Why: it may not be part of the sale.
- Please send the lease and any amendments. Why: term, rent increases and assignment.
- Has the landlord said anything about renewal or redevelopment? Why: the premises may be at risk.
Send questions in writing, numbered, and ask for written answers. Numbered answers can be referenced later in the purchase agreement's disclosure schedules, which turns what the seller told you into something you can rely on.
Frequently asked questions
Should due diligence questions be in writing?
Yes. Written questions and answers create a record, help your advisors, and can be tied to the seller's representations in the purchase agreement.
What if the seller won't answer?
Ask why. Some delays are just time pressure, but refusing to share bank statements or tax returns is a serious warning sign.
How many questions is too many?
Prioritize. Send the questions that could end the deal first, then the detail. A huge list sent at once can stall a small seller.
How is this different from questions before an offer?
Pre-offer questions decide whether to make an offer. Diligence questions verify what you were told, with documents.
What's the most important question to ask a seller?
'Walk me through a normal week for you.' It reveals how much the business depends on the owner better than any direct question.
Should I ask why they're selling?
Yes, and then check whether the business's numbers fit the story. Retirement and burnout are common and fine; a declining business or a coming problem (lease, competitor, regulation) is what you're screening for.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (documents lenders require)
- SBA: Buy an existing business or franchise
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.