M&A Due Diligence Checklist: 50 Items Your Attorney Should Review
Not a generic document list - a prioritized, categorized framework with red flags for each item, who reviews it, and the 10 items most commonly missed that cost buyers the most money.
Key Takeaways
- 1 50 critical items across 9 categories - financial, legal, tax, operational, HR, IP/tech, environmental, commercial, and insurance.
- 2 Each item includes a red flag indicator telling you exactly what to watch for - not just what to request.
- 3 Every item is assigned to a reviewer - M&A attorney, CPA, buyer, or specialist - so nothing falls through the cracks.
- 4 10 commonly overlooked items that experienced M&A attorneys catch but generalists miss - with real-world cost examples.
- 5 Based on years of M&A practice - this is the actual framework our team uses, not a theoretical template.
Why Most Due Diligence Checklists Fail Buyers
Search for "M&A due diligence checklist" and you'll find dozens of generic document request lists. They'll tell you to collect tax returns, financial statements, and contracts. What they won't tell you is what to look for in those documents, who should review each item, or which findings actually kill deals.
This checklist is different. It's built from years of closed transactions and organized around what actually matters - with red flags, reviewer assignments, and priority ratings for every item.
How to Use This Checklist
Review Before LOI
Understand the scope of DD you'll need before signing the letter of intent
Assign Reviewers
Use the reviewer tags to delegate each section to the right professional
Track Red Flags
Log every finding by severity - then negotiate adjustments into the purchase agreement
Checklist Legend
Financial Due Diligence
The backbone of every deal. Validates that the business earns what the seller claims.
Independent verification of normalized EBITDA, add-back legitimacy, and revenue sustainability.
Red flag: Add-backs exceed 30% of EBITDA or "one-time" expenses recur annually
Income statements, balance sheets, cash flow statements - audited if available.
Red flag: Tax returns don't match P&L statements, or revenue recognition changes year-to-year
Revenue breakdown by customer, product, geography, and channel.
Red flag: Any single customer represents >20% of revenue
Current AR/AP aging schedules with collectability analysis.
Red flag: AR over 90 days exceeds 15% of total, or AP being stretched to manage cash
Trailing 12-month working capital trends and target calculation for closing adjustment.
Red flag: Working capital declining in months leading to sale (seller draining the business)
All outstanding debt, credit lines, guarantees, and contingent liabilities.
Red flag: Personal guarantees that won't release at closing, or undisclosed debt obligations
3-year capex history plus forward requirements for equipment, technology, and facilities.
Red flag: Deferred maintenance creating a capex cliff post-closing
Physical inventory count, obsolescence reserve, and FIFO/LIFO methodology.
Red flag: Obsolete or slow-moving inventory inflating asset values
Legal & Corporate
Identifies liabilities that survive closing and become your problems.
All customer, vendor, supplier, and service contracts - especially change-of-control provisions.
Red flag: Contracts that auto-terminate on change of ownership, or key contracts expiring within 6 months
All current, pending, and threatened litigation - plus settlements from the past 5 years.
Red flag: Active lawsuits with exposure >$100K, or pattern of employee/customer claims
Articles of incorporation/organization, operating agreements, shareholder agreements, cap table.
Red flag: Undisclosed shareholders, transfer restrictions, or consent requirements for the sale
All lease agreements, assignment provisions, renewal terms, and landlord consent requirements.
Red flag: Lease expires within 12 months, above-market rent, or landlord consent required for assignment
All business licenses, professional permits, and regulatory filings - with expiration dates.
Red flag: Non-transferable licenses that require new applications, or expired permits
Any contracts, leases, or payments between the company and its owners, officers, or their family members.
Red flag: Above-market leases to owner-related entities, or services from owner-controlled companies
UCC filings, title searches, lien verification on all major assets.
Red flag: Undisclosed liens, encumbrances, or assets titled personally rather than in entity name
Tax Due Diligence
Tax issues don't go away at closing - they follow the business (and sometimes the buyer).
All corporate, payroll, sales tax, and property tax returns with supporting documentation.
Red flag: Unfiled returns, amended returns, or discrepancies between returns and financial statements
Sales tax registrations, filing history, and nexus analysis for all states where the business operates or sells.
Red flag: Sales tax nexus in states with no filings - exposure can be 3-7 years of back taxes plus penalties
Classification of all 1099 contractors vs. W-2 employees - with IRS factor test analysis.
Red flag: Workers classified as 1099 who work exclusively for the company, use company equipment, or follow company schedules
All IRS and state audit correspondence, open assessments, and negotiated settlements.
Red flag: Pending audits, aggressive tax positions without documentation, or pattern of disputes
Tax implications of asset vs. stock purchase, Section 338(h)(10) election analysis, and allocation schedule.
Red flag: Seller insisting on stock sale without tax analysis showing benefit to buyer
Operational Due Diligence
Can this business run without the current owner? This section answers that question.
How involved is the owner in daily operations, key customer relationships, and sales?
Red flag: Owner manages top accounts personally, is the sole sales driver, or has no documented processes
Written procedures for key operations, training materials, and organizational chart.
Red flag: Critical processes exist only in the owner's or key employee's head
Top 10 vendors, contract terms, alternative sources, and supply concentration risk.
Red flag: Single-source dependency for critical inputs with no backup supplier
Physical condition of facilities, equipment age, maintenance history, and replacement schedule.
Red flag: Deferred maintenance creating immediate capex needs that reduce deal value
Face-to-face meetings with key managers to assess competence, retention plans, and culture.
Red flag: Key managers uncertain about staying post-acquisition, or management team not aligned
Direct conversations with top 5-10 customers and key vendors about the relationship and satisfaction.
Red flag: Customers unaware of the sale, or expressing intent to RFP if ownership changes
HR & Employment
People are the business. Retention, compliance, and culture make or break the transition.
Employment agreements, non-compete/non-solicitation agreements, and severance provisions for key personnel.
Red flag: Key employees with no non-competes, or change-of-control severance triggers
Complete employee roster with titles, tenure, compensation, and benefits participation.
Red flag: Above-market compensation to owner's family members, or high turnover in key positions
Health insurance, 401(k), pension plans, PTO policies, and all benefit summaries.
Red flag: Underfunded pension obligations or accrued PTO liabilities not on the balance sheet
EEOC complaints, DOL investigations, workers' comp claims, and labor disputes.
Red flag: Pattern of employment claims, pending EEOC investigations, or union organizing activity
Current handbook, workplace policies, safety protocols, and compliance training records.
Red flag: No written policies, outdated handbook, or missing required workplace postings
Assess company culture, management style, and how well it will integrate with your existing operations.
Red flag: Significant culture mismatches that could drive post-closing attrition
Need Help Running Due Diligence?
This checklist is our starting point. We customize every due diligence engagement based on your specific deal - industry, size, structure, and risk profile.
IP & Technology
Verify that the company actually owns the IP it claims - and that it's properly protected.
Patents, trademarks, copyrights, trade secrets - plus IP assignment agreements from all employees and contractors who created them.
Red flag: IP created by contractors without written assignment agreements - they may still own it
All software licenses (enterprise, SaaS, open-source), transferability, and compliance.
Red flag: Non-transferable licenses, open-source code in proprietary products, or end-of-life systems
Security policies, breach history, penetration test results, and data privacy compliance (CCPA/GDPR).
Red flag: Prior breaches, no written security policy, or non-compliance with data privacy regulations
Domain name ownership, social media accounts, and digital asset inventory.
Red flag: Domains or social accounts registered personally rather than in entity name
Server infrastructure, backup systems, disaster recovery plan, and business continuity procedures.
Red flag: No backup system, single-person IT management, or no disaster recovery plan
Environmental
Historical use review, site inspection, and records search for environmental contamination.
Red flag: Prior use as gas station, dry cleaner, auto shop, or industrial facility
Air, water, and waste discharge permits - current status, violations, and renewal dates.
Red flag: Expired permits, violation notices, or fines from regulatory agencies
Chemical inventory, storage practices, disposal records, and OSHA compliance documentation.
Red flag: Improper storage or disposal practices, or proximity to waterways or residential areas
Tank inventory, removal records, and asbestos/lead paint surveys for buildings built before 1980.
Red flag: Active or decommissioned underground tanks without proper documentation
Commercial & Market
Top 10 customers by revenue, contract terms, churn rate, and lifetime value trends.
Red flag: Top customer >20% of revenue, increasing churn, or at-will relationships with no contracts
Market share, competitive threats, industry trends, and barriers to entry.
Red flag: Market shrinking or commoditizing, new well-funded competitors emerging
Current pipeline, win rate, average deal size, and 12-month revenue forecast with assumptions.
Red flag: Inflated pipeline, declining win rates, or forecasts based on unsubstantiated assumptions
Pricing history, ability to raise prices, gross margin trends, and input cost sensitivity.
Red flag: Declining margins, price-sensitive customers, or rising input costs with no pass-through
Online reviews, brand recognition, customer satisfaction metrics, and reputation risks.
Red flag: Negative online reputation, BBB complaints, or brand dependent on outgoing owner
Insurance
All active policies - general liability, D&O, E&O, property, cyber, workers' comp, and umbrella.
Red flag: Coverage gaps in key risk areas, or policies that don't transfer to new owner
Loss runs from all carriers showing claims frequency, severity, and open claims.
Red flag: Frequent workers' comp claims, open product liability claims, or increasing premiums
Which policies transfer to the new owner, which need new applications, and any gaps in coverage during transition.
Red flag: Key policies that terminate on change of ownership with no grace period
Evaluate whether representations and warranties insurance is appropriate for the deal.
Red flag: Seller unwilling to make standard reps - R&W insurance may be necessary to bridge the gap
The 10 Most Commonly Overlooked Due Diligence Items
These are the items that experienced M&A attorneys catch but general business lawyers miss. Each one has cost buyers real money in deals we've reviewed.
Change-of-Control Provisions in Customer Contracts
Many customer contracts include clauses that allow termination if the business changes ownership. If your top customer's contract has this provision, you could lose 20%+ of revenue the day after closing.
Fix: Obtain customer consent as a closing condition, or restructure the deal to avoid triggering the clause.
Personal Goodwill vs. Enterprise Goodwill
If the business's value is tied to the owner's personal relationships, reputation, or expertise, that "personal goodwill" may not transfer. You could be paying for value that walks out the door.
Fix: Structure a consulting/transition agreement and earnout tied to customer retention metrics.
Sales Tax Nexus in Multiple States
If the business sells into states where it hasn't been collecting sales tax, the buyer inherits the exposure. Back taxes, penalties, and interest can accumulate to 3-7 years of uncollected tax.
Fix: Run a nexus study before closing. Address exposure through seller indemnification or purchase price reduction.
Worker Misclassification (1099 vs. W-2)
Workers classified as independent contractors who should be employees create payroll tax liability, benefits exposure, and potential DOL penalties. This is one of the most common middle-market findings.
Fix: Require seller remediation before closing - reclassify workers and pay back taxes.
IP Assignment Agreements from Employees/Contractors
Without written IP assignment agreements, employees and contractors may retain ownership of the code, designs, or content they created. The company's "core technology" might not actually belong to the company.
Fix: Require executed IP assignment agreements from all creators as a closing condition.
Lease Assignment Restrictions
Commercial leases often require landlord consent for assignment - and some landlords use this as an opportunity to raise rent or renegotiate terms.
Fix: Contact the landlord early in DD. Get consent terms in writing before the purchase agreement is finalized.
Environmental Phase I Triggers
Any deal involving real property should trigger a Phase I assessment. Prior uses (gas stations, dry cleaners, auto shops, manufacturing) can leave contamination that becomes the new owner's liability.
Fix: Always order Phase I for deals with real property. If issues found, Phase II testing before closing.
Insurance Policy Transferability
Many insurance policies - especially D&O and cyber - don't automatically transfer in an asset purchase. You could have a gap in coverage between closing and new policy issuance.
Fix: Engage an insurance broker 30+ days before closing to arrange new policies with no coverage gap.
Personal Guarantees That Don't Transfer
The seller may have personally guaranteed leases, credit lines, or vendor agreements. These guarantees don't automatically release at closing - the seller stays on the hook unless the lender/landlord explicitly releases them.
Fix: Identify all guarantees during DD and negotiate releases or replacements as closing conditions.
Verbal Agreements with Key Customers or Vendors
In middle-market deals, it's common to find that the biggest customer relationships are based on handshake agreements rather than written contracts. These arrangements have no legal enforceability and no transfer mechanism.
Fix: Formalize key relationships in writing before closing, or factor the risk into your valuation.
Attorney Insight - Alex Lubyansky
"The 10 items above are why you need an M&A attorney, not just a business lawyer. A general practitioner will review contracts for basic terms. An experienced M&A attorney will immediately look for change-of-control provisions, personal goodwill risk, and the dozen other hidden issues that don't appear on generic checklists. It's the difference between checking boxes and actually protecting your investment."
Checklist Summary
50
Total Items
9
Categories
14
High Priority
22
Medium Priority
14
Standard
Don't Close Without Proper Due Diligence
This checklist is our starting framework. We customize every engagement to your specific deal, industry, and risk profile - so nothing slips through the cracks.
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Frequently Asked Questions
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Related Resources
What Is Due Diligence in M&A?
The 9 types of DD explained with real deal disaster case studies
M&A Due Diligence: The Complete Guide
Comprehensive pillar guide covering every aspect of the DD process
Representations and Warranties in M&A
How DD findings translate into purchase agreement protections
Michigan Due Diligence Checklist
State-specific 100+ point checklist with LARA and MBCA requirements