Request a consistent information set
Ask for financial statements, general ledger detail, bank records, tax filings, aging reports, inventory records, debt schedules, payroll information, contracts, and capital-expenditure history for an appropriate period. Tie reported revenue and cash to source records.
Look for changes in accounting method, unusual owner items, related-party transactions, deferred maintenance, customer concentration, and expenses that would return after closing. Document every adjustment rather than silently “normalizing” it.
Test the economics and cash need
Rebuild revenue by customer, product, location, or contract where possible. Analyze gross margin, recurring versus one-time sales, collection history, inventory condition, required capital spending, and the working capital needed to operate after closing.
Model a downside case: lost customer, lower margin, delayed collections, key employee departure, or slower transition. Include purchase price, fees, financing, taxes, integration, and the owner’s post-close compensation.
Coordinate the deal team
An accountant can investigate financial information; a lawyer should review contracts, structure, representations, and liabilities; tax and industry specialists may be needed. Lenders will have their own diligence and underwriting requirements.
Do not rely on this guide for a valuation, legal conclusion, tax opinion, or financing approval. SBA resources emphasize due diligence and research because the facts of each acquisition change the answer.
Apply the guide to the next decision
A buyer’s review should separate the seller’s records from the buyer’s assumptions. For each important figure, note its period, source, accounting basis if known, and whether it has been reconciled. Ask how revenue is earned and collected, what costs are recurring, which obligations may continue after a sale, and what information remains unavailable. A summary or presentation is not a substitute for source documents.
Organize questions by topic—financial records, operations, people, contracts, assets, debt, and the proposed transaction—then bring specialized questions to the appropriate legal, tax, lending, or investment professional. Model scenarios only with clearly labeled assumptions and avoid treating a seller’s projection as a guaranteed result. This guide is educational and is not an individualized valuation or acquisition recommendation.
Protect sensitive material during the review. Share only the records needed for the current question, use an agreed secure delivery method, and track who received each version. Confirm that a document is current before relying on it and record where a later version differs. Ask qualified professionals to review the legal, tax, lending, and transaction details that cannot be settled by a general financial checklist. Keep outstanding requests separate from assumptions used in a scenario.
Related questions owners ask
These related questions add practical context to the guide. Use the answers as a starting point, then check them against the records, timing, and operating details of your own business.
Should we open another location?
Open another location only after the proposed unit has a credible operating plan and the existing business can support the transition. Separate location revenue, direct costs, startup cash, management capacity, lease commitments, and ramp timing, then test downside cases rather than relying on the first-year sales hope.
Open the question in the Business Owner LibraryShould we acquire a competitor?
An acquisition can add customers, capability, or capacity, but it can also import liabilities, integration work, and cash pressure. Define the strategic reason, investigate the target’s financial and operational records, model the combined business and financing, and decide what evidence would make you walk away.
Open the question in the Business Owner LibraryCan we afford an acquisition?
Affordability is more than the purchase price: include financing terms, working capital, transaction costs, integration spending, management time, and the downside if expected earnings arrive late. Build a cash forecast for the combined business under conservative assumptions and have legal, tax, and financing professionals review the structure.
Open the question in the Business Owner LibraryHow do I know what another company is really worth?
Value is an opinion grounded in the business’s cash generation, assets, risks, prospects, and the terms of the transaction—not a number produced by revenue alone. Review normalized financial information, customer concentration, owner dependence, liabilities, and the quality of earnings, then use an appropriately qualified valuation professional for a formal conclusion.
Open the question in the Business Owner LibraryWhat financial due diligence should I do before buying a business?
Reconcile reported revenue and profit to bank activity, tax filings, contracts, receivables, payables, inventory, payroll, debt, capital needs, and known commitments. Ask how results were produced, test unusual items and customer concentration, and use independent legal, tax, and financial advisers before signing.
Open the question in the Business Owner LibraryWhat's our true customer acquisition cost?
Customer acquisition cost is the acquisition spend divided by the customers acquired for a defined period and channel, but the useful calculation depends on what you include. State whether the numerator contains payroll, agency fees, software, commissions, and overhead, then compare the result with contribution margin, retention, and the time it takes to recover the spend.
Open the question in the Business Owner LibraryHow dependent are we on our top five customers?
Measure concentration by revenue, margin, receivables, contract terms, and operational capacity—not revenue alone. Review what would happen if each major customer reduced volume or paid late, document the assumptions, and build a plan for diversification or explicit concentration risk management.
Open the question in the Business Owner Library