What Documents Will a Buyer Ask for During Due Diligence?

Why buyers ask for so much

Due diligence is the buyer’s chance to verify that the business is what it appears to be. A buyer, and often their lender or accountant, will review your records to confirm your earnings, spot risks, and check for hidden liabilities before completing the purchase. These reviews commonly span financial, legal, physical, employee, licensing, insurance, contract, and customer records [1]. The more organized and complete your records are, the more smoothly this stage tends to go.

Financial records

This is usually the first thing a buyer reviews. Common requests include:

• Business tax returns, generally for the past three years
• Profit-and-loss statements and balance sheets, including recent unaudited statements
• A schedule of accounts receivable and accounts payable
• A schedule of business debts and any liens
• Bank statements and general ledger detail
• An inventory list, if the business carries inventory

If your financial statements have never been reviewed by an outside accountant, expect a buyer to want that review done, or to hire their own accountant to do it.

How many years of records do buyers usually want?

Most buyers ask for financial, legal, and employee records covering the past two to three years, and sometimes longer for larger or more complex transactions [1]. Insurance claims, customer purchase history, and litigation records are often requested for a similar window. If your business has been through a recent change, like new ownership, a location move, or a major contract change, be ready to explain it, since buyers will usually ask about anything that looks unusual in that window.

Contracts and legal documents

Buyers want to know what obligations they’d be taking on. This often includes:

• Lease agreements for your location or equipment
• Vendor, supplier, and customer contracts, especially long-term ones
• Loan agreements, lines of credit, and any promissory notes
• Nondisclosure or noncompete agreements
• Any pending, threatened, or past lawsuits
• Business licenses, permits, and any correspondence with regulators

If your business is incorporated or an LLC, a buyer will also usually ask for your formation documents, any amendments, and confirmation that your business is in good standing with the state.

Employee information

A buyer needs to understand who runs the business day to day. Typical requests include:

• A list of employees, positions, pay, and length of service
• Employment, nonsolicitation, or noncompete agreements with key staff
• Your employee handbook and a summary of benefits
• Records of any workplace disputes, claims, or terminations in the past few years
• Payroll tax filings

Equipment and property

Expect a request for a list of business equipment and any vehicles, including their age and condition, along with copies of any loans or liens tied to that equipment. If you own real estate connected to the business, buyers will also want deeds, leases, and any zoning or use permits.

Insurance and risk history

Buyers often ask for copies of your general liability, property, and workers’ compensation policies, along with a summary of insurance claims from the past few years. This helps them understand the risk profile of the business they’re buying.

Customer and sales information

To evaluate how stable the business’s revenue is, a buyer may ask for a list of your largest customers, how much they’ve purchased over the past couple of years, and whether you’ve lost any major customers recently. This is part of how a buyer checks for customer concentration risk.

What can change this list

The exact documents a buyer requests depend on the size of your business, your industry, whether the deal is structured as an asset sale or a full business sale, and whether the buyer is using a lender like an SBA-backed loan. A larger deal or one involving a lender will usually require more documentation than a smaller, simpler transaction.

What happens if I can’t produce a requested document?

Gaps happen, especially in businesses that haven’t kept formal records. If a document doesn’t exist, it’s usually better to say so early and explain your recordkeeping than to leave a buyer to discover the gap later. In some cases, your accountant can help recreate the missing information from other records.

Should I organize these documents before I list my business?

Consider gathering the documents above into one organized folder, physical or digital, before you list your business. Having this ready in advance can shorten the due diligence period and reduce the chance that a buyer gets nervous about delays.