Due diligence checklist for buying a business, ordered by what 27,500+ listings leave out

The short answer

Every figure here comes from the Main Street Index, BigIdeasDB’s census of 84,900+ businesses-for-sale listings from 29 sources in 115 countries (78,500+ after removing cross-site duplicates). We used the 27,500+ listings quoted in US dollars on an owner earnings (SDE) basis that state both an asking price and SDE. SDE, seller’s discretionary earnings, is profit plus the owner’s pay and perks. Prices are asking prices and earnings are stated by the seller.

This page is the deep version of step 7 in our guide to buying a business. For the traps that sink first deals, read 12 mistakes when buying a business. Buying software instead of a storefront or a service company? Use the SaaS acquisition due diligence checklist.

What due diligence covers when you buy a small business

Due diligence is the 30 to 90 days between a signed letter of intent and closing when you prove the seller’s claims and find what they did not say. The median US listing with a price and SDE states only 2 or 3 of 8 basic diligence facts (Main Street Index, 27,500+ listings), so most of the work is finding facts, not checking them. The letter of intent sets what you get to check: our letter of intent guide shows why training and working capital belong in it, since 49.5% of listings that state a training period offer two weeks or less and only 1.1% mention working capital.

Checklists usually split the work four ways. Financial: tax returns, P&L, bank deposits, add-backs. Legal: entity, contracts, liens, licences, litigation. Operational: equipment, staff, suppliers, the owner’s week. Commercial: customers, competitors, reviews. Those are the four main types of due diligence.

The “four P’s” come from fund manager diligence (people, philosophy, process, performance). For a main street deal, swap philosophy for property: people (owner and staff), process (how work gets done without the owner), performance (earnings you can tie to the bank) and property (lease, equipment, inventory). Property is where listings say least.

Most ranking checklists are written for corporate deals: board minutes, stock options, pension funding. A $400K landscaping company has none of those. It has a truck fleet, a yard lease, three crew leads and one owner who quotes every job. This checklist is sized for that business.

What the listing already tells you, and what it leaves out

A listing answers the easy questions and skips the expensive ones. Revenue appears on 90.8% of US listings that state a price and SDE; the lease can be assigned is mentioned on 1.2% (Main Street Index, 27,500+ listings). The table below is your diligence map: the lower the disclosure, the more hours the item needs.

Read the “when stated” column with suspicion. Sellers who describe equipment call it new or updated 72.4% of the time and admit it needs capital spending 1.0% of the time. Sellers who mention concentration call the customer base diversified 96.1% of the time. Silence is not a clean answer. It is the question.

Disclosure does not buy a premium either. Listings that state 0 or 1 of 8 basics (owner role, rent, lease, equipment, concentration, inventory, FF&E, headcount) ask a median 2.44x. Those that state 6 or more ask 2.65x. So the price will not tell you how much is hidden.

“How many corners the owner cuts to save a buck that I would never do. A lot of this can be discovered in due diligence, I found them, but they aren’t often things you have the time to uncover.”r/buyingabusiness

What gets disclosed at each deal size

Bigger deals disclose more about customers and less about the lease. Customer concentration is mentioned on 4.1% of listings under $100K and 14.5% of listings over $5M, while lease detail falls from 25.7% to 8.8% (Main Street Index, 27,500+ US listings). Equipment condition stays between 10% and 14% at every size.

What it means for your plan: under $500K, the lease and the owner’s hours are the big unknowns, and customer lists are rarely mentioned because most customers are walk-ins or households. Over $1M, B2B customer contracts matter more and the premises are often owned or bundled. Size the checklist to the deal. Our budget guide shows what each price band buys.

Check 1: Test the owner margin before you ask for anything

Divide stated SDE by revenue and compare it with the industry median. 19.5% of US listings without real estate claim an owner margin at least 1.5 times their industry’s median (4,300+ of 22,200+ listings that state price, SDE and revenue, templated look-alikes removed, Main Street Index). That is the fastest red flag you can run, and it costs nothing.

Here is why it matters. High-margin listings look cheap on earnings and expensive on sales. Across all 24,000+ screened listings with revenue, they ask 2.17x stated SDE against 2.53x for listings with a normal margin. But they ask 1.00x revenue, against 0.59x.

If those businesses really earn their industry’s normal margin, the same asking prices are a median 4.10x owner earnings, not 2.06x (listings without real estate). The cheap multiple was the padded number. A fat margin can be real: a lean owner who does every job, a premium niche, a cash-light model. But it is the claim most likely to shrink when the add-backs meet receipts, and it moves the price more than any other line.

There is also an outright impossibility screen: 230+ listings without real estate state owner earnings equal to or above revenue. And 11.0% claim an owner margin above 50%. Overall, the median listing states SDE of 23.7% of revenue (25,000+ listings).

Worked example (illustrative, built from the high-margin group’s medians, not one listing). A business asks $391K on $391K of revenue and states $179K SDE, a 47% margin. The bank test: 90% borrowed is $352K; at 10.5% over 10 years the payment is 16.2% of the loan, about $57K a year. After an $80K owner salary, stated SDE covers it 1.74 times. Rebuilt at the industry’s 23% margin, SDE is about $90K and coverage drops to 0.18 times. Same listing, opposite answer.

Trades and owner-labour businesses dominate the list: landscaping, flooring, electrical, painting and plumbing, where the owner’s own unpaid hours are easy to leave out of the cost base. The industry medians are on each industry benchmark page, and our most profitable small businesses study ranks industries by margin. Our business price checker runs the multiple side of this test on one listing.

“Common fake add-backs are the owner car the route still needs, one-time costs that show up every year, and family payroll that is really labor. If you cannot rebuild the number from filings, haircut it hard or walk.”r/buyingabusiness

Check 2: Tie the tax returns, the P&L and the bank

No listing in the Main Street Index publishes tax returns or bank statements, so this check starts from zero on 100% of deals. Ask for three years of business returns, 24 to 36 months of monthly P&L, and 12 to 24 months of bank statements. Then make the three agree.

• Returns to P&L. Annual revenue and net income on the return should match the P&L within a small, explainable gap.
• P&L to bank. Monthly deposits should match monthly sales, less sales tax and transfers. This is a proof of cash.
• Returns to the IRS. Your lender will order transcripts with IRS Form 4506-C. Do it first, so you are not the last to learn the returns were amended.
• Monthly trend. Plot SDE by month. A slide in the last six months hides inside a good trailing-twelve total.

“Books that don’t tie to the bank. The P&L says one thing, the deposits and tax returns say another. Tying all three together is still the fastest way to find problems.”r/buyingabusiness

Cash businesses deserve a harder look. A seller who says “half our sales are cash” is asking you to pay for income they did not report. One r/buyingabusiness thread on a moving company put it plainly: the actual income on the tax return was “way way less” than the seller claimed. Banks lend on the return, not the story.

Check 3: Rebuild SDE from receipts and rerun the loan test

SDE is the number the price hangs on. Every one of the 27,500+ listings in this sample states it, and none attaches the add-back schedule behind it. Ask for the schedule, then keep only add-backs with a receipt and a reason they stop after the sale.

• Usually real: the owner’s salary and payroll taxes, one owner’s health insurance, interest and depreciation, a documented one-off legal bill.
• Usually not: the truck the business still needs, “one-time” repairs that appear every year, family members on payroll who do real work, marketing the seller cut to inflate the last year.
• Missing costs: a market wage for any job the owner does that you will not, and rent at market if the owner owns the building.

Then rerun the bank’s test on the rebuilt number: SDE minus your salary, divided by the yearly loan payment, should be at least 1.25. SBA 7(a) lenders apply that floor to historical earnings (SBA 7(a) program). If a full quality of earnings review is in budget, this is where it earns its fee. Our guides to valuing a small business and the down payment show the coverage math by industry and price band.

“How much is owner paid and for what effort/ tasks?”r/smallbusiness

Check 4: Measure customer concentration

Customer concentration is mentioned on 7.7% of US listings, and only 3.9% of those few admit one customer is large (Main Street Index, 2,100+ listings that state it). For the other 92.3%, you find out in diligence or after closing.

Ask for revenue by customer for the top ten, for each of the last three years. Rank them. Look at three things: the share of the biggest customer, the share of the top three, and who left. One buyer on r/SMBAcquisitionHub digs into contracts and churn history whenever a single client passes about 20 to 25% of revenue.

“If one client makes up too much of the revenue, you’re basically buying a business with one leg. Always ask for a customer revenue breakdown-percentages matter more than total numbers”r/SMBAcquisitionHub

Where a big customer exists, read its contract for change-of-control and termination clauses, and ask to meet them before closing. Tie part of the price to keeping them, through an earnout or a seller note that resets if they leave. The seller financing guide covers how notes are sized.

Check 5: Read the lease like the landlord is a party to the deal

Only 22.9% of US listings give any lease detail, and lease assignment is mentioned on 1.2% (Main Street Index, 27,500+ listings). Where years remaining are stated (1,900+ listings), the median is 4.5 years and 28.2% have under three left. Where rent is stated (7,700+), it runs a median 36% of SDE, and 34.9% of those listings pay more than half their SDE in rent.

• Term. Years left plus renewal options should cover your loan term. A 10-year SBA loan on a three-year lease is a bet on the landlord.
• Assignment. Does the lease allow assignment, and on what conditions? Get written landlord consent as a closing condition.
• Rent steps. Annual increases compound. A fixed 5% step adds about 28% to rent over five years.
• Personal guarantee. Expect the landlord to want yours. Find out whether the seller’s comes off.
• Estoppel letter. Ask the landlord to confirm in writing that rent is current and no defaults exist.

“The lease is crucial. How long does it go for and what are the annual increases. All of this goes up in smoke if the lease ends in 18 months and market rent is 40% higher.”r/smallbusiness

Our how-to-buy guide quotes rent at 35.6% of SDE across a wider set of listings; the 36% here uses only listings that state both price and SDE, so the two agree. Restaurant buyers should also read the rent test in buying a restaurant. For rent burden and years left by industry, assignment versus a new lease, and the SBA lease rule, see the lease when buying a business.

Check 6: Inspect equipment and count the inventory

Equipment condition is described on 12.5% of US listings, yet furniture, fixtures and equipment make up a median 19.8% of the asking price where a value is stated (12,700+ listings, median $76K). Inventory is valued on 41.2%, a median $20K or 4.6% of the price, and 34.2% of those listings say it is on top of the asking price (Main Street Index). Our guide to the hidden costs of buying a business shows that adding that stock back lifts the median multiple on those listings from 2.61x to 3.02x.

• Asset list. Every vehicle and major machine with make, year, hours or mileage, and who holds the title.
• Service records. Two to five years, matched to the P&L repair line. A repair line that fell to zero in the sale year is a maintenance holiday.
• Inspection. Pay a mechanic or technician to look. Budget replacements as a cost in your model, never as an add-back.
• Inventory. Count it the day before closing, at cost, and exclude stock that will not sell. Fix the maximum you will pay for it in the purchase agreement.

“You need to do your due diligence on the equipment to see how often it should be maintained and whether it has been maintained properly leading up to the sale. Depending on the equipment, reviewing 2 to 5 years of maintenance records is a reasonable starting point.”r/buyingabusiness

“be careful to make sure the inventory is saleable and how it was valued. Lots of people get screwed on the valuation side.”r/buyingabusiness

Equipment-heavy businesses carry the most risk here: our car wash, laundromat and auto repair shop guides show what the kit is worth in each.

Check 7: Map the owner’s week and the people who stay

Owner role is stated on 36.6% of US listings and a manager in place on 10.9% (Main Street Index, 27,500+ listings). The median listing that states headcount has 5 staff (17,200+ listings). In a five-person business, the owner is usually the sales team, the estimator and the escalation point.

• The owner’s week. Ask for a written list of what they do each day and how many hours. Shadow them for a week if you can.
• Who holds the relationships. Which customers call the owner’s cell? Which supplier terms are personal?
• Key staff. Payroll register, tenure, pay against market. Meet the two or three people you cannot lose, with the seller’s permission, late in diligence.
• Transition. Listings that state training offer a median 3 weeks (7,900+ listings). Negotiate longer if the owner holds the sales.

“Ask if you can work for 2 weeks with him in the business during due diligence to see the real day to day, hear issues, etc.”r/buyingabusiness

If the hours and the earnings only work with the owner on site, you are buying a job. That can be fine; just price it as one. Our easiest small business to run study measures owner involvement by industry, and buying from a retiring owner covers the handover.

Check 8: Licences, liens, taxes and contracts

Only 10.5% of US listings name a licence or permit (2,700+ listings, Main Street Index), so assume one exists until you have checked. This check is mostly for your deal lawyer, but you should own the list.

• Licences and permits. Which transfer, which must be re-issued in your name, and how long that takes. Trades, childcare, food, alcohol, health and transport all have them.
• Liens and judgments. A UCC lien search in the seller’s state shows lenders with a claim on the assets. Add a judgment and litigation search.
• Tax accounts. Unpaid sales, payroll or property taxes can follow the assets in some states. Ask for a tax clearance letter where your state offers one.
• Contracts. Customer, supplier, equipment lease and software contracts: look for change-of-control and assignment clauses.
• SBA eligibility. Some business types cannot be financed under 13 CFR 120.110. Check before you pay for diligence.
• Franchise resales. Read the franchise agreement and disclosure document for transfer fees, approval and years left. The FTC Franchise Rule sets what the franchisor must disclose.

Most small deals close as asset purchases, so liabilities stay with the seller unless the contract says otherwise. You and the seller file IRS Form 8594 to allocate the price across assets, which sets your depreciation.

“If there is a contract you need to make sure that contract will transfer to you.”r/smallbusiness

Check 9: Price what you found, or walk

Every finding becomes a price cut, a structure change, a contract clause or a reason to leave. 11.6% of US listings already show a price reduction before any buyer has looked (Main Street Index, 27,500+ listings), so a fact-based retrade is normal.

• Price. Rebuilt SDE times the industry multiple. If SDE fell 20%, the price should too.
• Structure. A seller note, an earnout or an escrow holdback moves risk you cannot measure back to the seller.
• Reps and warranties. The seller signs that the financials, the asset list and the absence of liens are true.
• Walk away. Books that will not tie, a landlord who will not assign, or a seller who stalls documents.

“I calculated what it would cost me to run the business properly and adjusted earnings accordingly. The seller felt those decisions were on me and he shouldn’t be penalized.”r/buyingabusiness

Stop-the-deal flags from the data: a margin far above the industry’s with no receipts, SDE equal to or above revenue, rent over half of SDE with under three years on the lease, and one customer above a quarter of sales. The full red-flag table, with what each usually means, is in our buyer mistakes guide, and the downside cases are in the disadvantages of buying an existing business.

The document request list, with what each listing already gives you

Fourteen requests cover a typical main street deal, and listings touch on only about half of them, usually on a minority of listings (Main Street Index, 27,500+ US listings). Send this list with your signed LOI so the clock starts on day one.

Keep everything in one folder with version dates. One first-time buyer of a $1.4M commercial cleaning company described the paperwork on r/buyingabusiness: NDA, LOI, asset purchase agreement, SBA guarantees, insurance assignments and revised schedules, signed across three systems. If you are using AI to read the pile, our guide on how to use AI to analyze a business for sale has prompts for CIMs and tax returns, and the due diligence help page shows how to check a listing against its industry.

Questions to ask the seller when buying a business

Listings answer “why are you selling” 71.6% of the time and almost never answer how many hours the owner works (Main Street Index, 27,500+ US listings). Ask in writing, and compare the answers with the documents.

1. Why are you selling now, and what would make you stay?
2. How many hours a week do you work, and on what?
3. Which customers would follow you if you left? Which call your cell?
4. What did the top ten customers buy in each of the last three years?
5. Which add-backs have receipts? What did you cut in the last year?
6. What equipment needs replacing in the next three years, and what has been deferred?
7. When does the lease end, and has the landlord agreed to assign it?
8. Which staff are essential, and do they know about the sale?
9. Which licences are in your personal name?
10. Will you carry part of the price, and how long will you stay to train?

“Ask him when he’s leaving and if he expects to stay on in any capacity. Make sure there is a hard date he is leaving on, and make sure you have all of that in writing. No handshake deals.”r/smallbusiness

Take the stated reason with a pinch of salt. Our study of why owners sell their businesses shows retirement leads by a wide margin and financial distress is almost never admitted.

How long due diligence takes and what it costs

Plan on 30 to 90 days for a small business. Letters of intent typically grant 60 to 120 days of exclusivity to cover diligence and SBA funding, and vendor guides put mid-market acquisitions at 6 to 12 weeks. The pace is set by how fast the seller hands over documents.

• Days 1 to 10: document request, margin test, proof of cash. Kill the deal here if the books will not tie.
• Days 10 to 40: SDE rebuild, customer and lease review, equipment inspection, lender underwriting.
• Days 40 to 75: legal searches, landlord consent, staff meetings, purchase agreement.
• Final week: inventory count, closing statement, Form 8594 allocation.

Costs fall on the buyer. A quality of earnings review on a small deal runs roughly $10K to $50K by the estimates buyers and advisers post. A broker on r/buyingabusiness reported that lenders now want one at $3M and up, plus an independent valuation on every SBA acquisition. Below that, many buyers do their own proof of cash and pay an accountant to check it. The seller’s broker is not one of your costs: our business broker fees breakdown shows the seller pays, and brokered listings ask a median 2.9% more than owner-listed peers.

“I don’t see how I could justify $20k-$50k in due diligence costs like that. It’s just too expensive for a deal this size.”r/buyingabusiness

The margin test in check 1 is free, which is why it goes first. Do it before the LOI on every listing you are serious about.

Can a buyer back out during due diligence?

Yes, if your letter of intent and purchase agreement make closing conditional on diligence and financing. Most LOIs are non-binding except for exclusivity and confidentiality, and only 25.1% of US listings even say whether seller financing is on offer (Main Street Index, 27,500+ listings), so the protective terms are yours to write.

• Write a diligence period with a date, and a financing contingency tied to your SBA approval.
• Keep any deposit in escrow and say when it is refundable.
• List what the seller must deliver and by when. A missed deadline is a clean exit.

Walking away costs you fees already spent. Closing on a bad deal costs the down payment, the personal guarantee and years. Our business worth guide helps you set the price you will walk at before emotion sets it for you.

Thinking of starting one instead?

Starting skips diligence on someone else’s books, but you trade it for diligence on demand. The median US listing has been running 13 years (19,800+ listings stating age, Main Street Index): that history is what you pay for when you buy. If you would rather build, our what business should I start guide and business success rates study show the odds, and local business ideas shows what sells in each region.

Diligence checklists by industry

Each industry adds its own items to the nine checks. The guides below carry the industry numbers from the Main Street Index, with every cut based on 30+ listings.

• Restaurants: rent against sales, health inspections, liquor licence transfer.
• Laundromats: machine ages, utility bills against revenue, lease length.
• Car washes: equipment, water and chemical costs, membership counts.
• HVAC and pest control: service agreements, technician licences, fleet.
• Daycares: licensed capacity, staff ratios, enrolment and waitlist.
• Gas stations: fuel supply contract, environmental reports, how revenue is counted.
• Vending routes: location agreements and templated “route packages”.
• Liquor stores: the licence transfer path and a stock count, since most sellers add a median $200K of inventory on top of the price.
• Home care agencies: whether the licence is non-medical or Medicare-certified, because the certified ones ask 4.00x against 1.26x.
• Coffee shops and septic businesses: rent share and truck condition, respectively.

Not sure which industry yet? Start with the best businesses to buy, ranked by buyer fit across 118 scored industries, then use live listings to find candidates. Our guide on how to find a business to buy explains why one marketplace is not enough: 18% of unique US listings sit on only one of the two largest.

What this data cannot tell you

The Main Street Index measures what 27,500+ US listings say, not what the businesses are. It cannot verify a single number, and some silence reflects the listing site’s form fields rather than the seller’s choice.

• Asking, not closing. Prices and multiples are asks. Many deals close lower or die in diligence.
• Stated, not verified. SDE and revenue come from the seller. The margin test flags outliers; it does not prove padding.
• Industry medians are asking medians. The benchmark margin is built from the same seller-stated figures.
• Silence is not “no”. A listing that does not mention a lease may have a good one. Disclosure rates measure listings, not businesses.
• Site fields differ. Some marketplaces have no FF&E or rent field, so those rates partly reflect where a business is listed (see coverage by source).
• Templates. 580+ look-alike listings (same industry, SDE and revenue in 3+ copies across 2+ states) were removed from the margin tables. They do not move the disclosure rates by more than a point.
• Not advice. Use a CPA and a deal lawyer. Tax and legal points here are general.

Population. 27,500+ de-duplicated Main Street Index listings quoted in US dollars on an SDE basis that state an asking price and SDE above zero, from 49,900+ USD SDE listings captured across 29 sources in late September 2026. This is the same population behind the 2.63x overall median in our valuation guides. Rent and lease figures here differ slightly from our how-to-buy guide (35.6% of SDE, median 4 years left), which uses every listing with buyer fields; this page uses priced listings only.

Margin test. Owner margin is stated SDE divided by stated revenue. Each listing is compared with the median margin of its own industry, computed after removing templated look-alikes; industries need 30+ listings. “Normalized multiple” is asking price divided by (revenue times the industry median margin). Loan example. 10% down, 90% borrowed at an illustrative 10.5% over 10 years (16.2% of the loan a year), an $80K owner salary, 1.25x floor, base = asking price. Medians throughout.

New to the index? The buyer walkthrough and the Main Street Index docs explain every field used on this page.

Frequently asked questions