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The Boring Business Buyer's Due-Diligence Checklist

A practical, line-by-line list of what to request, verify, and walk away from before you buy a small business — built for seller-financed, SOWS-style acquisitions.

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Use it deal by deal. Work top to bottom — request the documents, verify each item, and treat any unresolved walk-away trigger as a reason to pass. There is always another deal.

1. Financials to request (and actually read)

Never trust a listing's stated 'cash flow.' Ask for the documents below, then rebuild SDE yourself. If a seller won't produce these, that is itself the answer.

  • Three full years of federal business tax returns (plus the current year-to-date).
  • Three years of profit & loss statements AND balance sheets — monthly, not just annual.
  • Bank statements for the last 12–24 months, to reconcile against the P&L (deposits should match reported revenue).
  • Merchant-processor / point-of-sale statements to independently confirm card revenue.
  • The seller's SDE (Seller's Discretionary Earnings) calculation, with every add-back itemized.
  • A/R and A/P aging reports — how much is owed to the business, and how much it owes.
  • Sales-tax filings and payroll-tax filings (confirm they're current; back taxes transfer in an asset-light deal more often than buyers expect).
  • A list of all recurring/subscription revenue vs. one-time revenue.

2. Scrutinize the add-backs (this is where price is made or lost)

Add-backs inflate SDE, and SDE × multiple is the price. Every dollar of bogus add-back you accept is paid for at the full multiple. Challenge each one.

  • Owner's salary and payroll taxes — legitimate add-back ONLY up to what a replacement manager would cost; the excess is not.
  • One-time / non-recurring expenses — verify they were truly one-time (a 'one-time' repair that recurs every two years isn't).
  • Personal expenses run through the business (vehicles, travel, meals, phones) — legitimate, but get receipts; don't take a round number.
  • Owner family members on payroll who don't work there — add back their cost, but confirm the work they did actually gets done.
  • Interest and depreciation — standard SDE add-backs; make sure they aren't double-counted.
  • Reject add-backs you can't document. A clean SDE you can defend beats a high SDE you can't.

3. Customer concentration & revenue quality

A business that looks healthy can collapse the week after closing if one customer leaves. Map the revenue before you map the offer.

  • Revenue by customer for the last 2–3 years — what % comes from the top 1, 5, and 10 customers?
  • Red flag: any single customer > 10–15% of revenue, or top 5 > 40%. Concentration should lower your price and raise your seller-note.
  • Are top customers under written contract, or month-to-month / handshake? Will those contracts survive a change of ownership (assignment clauses)?
  • Customer tenure and churn — are they long-standing, or recently won (and as easily lost)?
  • How much revenue depends personally on the seller's relationships? Boring-business gold is revenue that runs on systems, not on the owner's golf buddies.
  • Online reputation: Google/Yelp/industry reviews, BBB complaints, and trend over time.

4. Operational due diligence

SOWS rewards Stale, Old, Weak, Simple — but 'simple to improve' is different from 'broken and undocumented.' Confirm the business can run without the seller in the room.

  • Owner dependence: how many hours/week does the seller work, and doing what exactly? Could a manager do it?
  • Documented systems / SOPs — or is everything in the owner's head? Undocumented = retraining risk and a longer transition.
  • Key-employee risk: who is essential, are they staying, and are they tied down (or a flight risk who could start a competitor)?
  • Supplier concentration and terms — single-source suppliers, exclusivity, or volume pricing that won't transfer to you.
  • Equipment & assets: age, condition, deferred maintenance, and what's leased vs. owned. Walk the floor; don't trust the asset list.
  • Software, logins, domains, social accounts, phone numbers — get a written inventory and a plan to transfer every one at closing.
  • Seasonality and the trailing-12-month trend: is revenue flat, growing, or quietly declining? A declining business is a different deal at a different price.

5. Legal, lease & liabilities

Boring businesses hide boring liabilities. Find them before they're yours.

  • Structure the deal as an asset purchase (not stock) where possible, so you don't inherit unknown liabilities — confirm with a deal attorney.
  • The lease: remaining term, rent escalations, assignment/transfer rights, and whether the landlord will consent. A great business with 6 months left on a lease is a problem.
  • Pending or threatened litigation, liens (UCC filings), and judgments against the business or owner.
  • Licenses, permits, and certifications — are they transferable, current, and held by the business (not personally by the seller)?
  • Employee classification (W-2 vs. 1099) and any wage-and-hour exposure — misclassification is a common hidden liability.
  • Insurance history and claims — gaps or a heavy claims record signal operational risk.
  • Non-compete from the seller in writing — geographic scope, duration, and that it actually has teeth in your state.
  • Outstanding warranties, gift cards, deposits, or prepaid contracts you'd be obligated to honor.

6. Seller-financing red flags

A seller who won't finance any of the deal is telling you something about their confidence in the business. Use the seller note as both a financing tool and a diligence tool.

  • A flat refusal to carry ANY seller note is a yellow-to-red flag — why won't they bet on their own numbers?
  • Push for a seller note of 30–60% of price; the more the seller carries, the more aligned they are with the business performing after closing.
  • Tie part of the note to an earn-out or performance hold-back when customer concentration or owner-dependence is high.
  • Watch for a seller insisting on all-cash AND a high multiple — that combination often means they want out before something breaks.
  • Confirm there's no senior lender lien that would subordinate or block a seller note (check UCC filings).
  • Get a real transition/training period in writing (typically 30–90 days, longer for relationship-driven businesses).
  • Beware seller 'add-back' stories that only exist verbally — if it's not on a tax return, it's not in your SDE.

7. Valuation sanity checks

Price is SDE × multiple. Get both right, and pressure-test the result three different ways before you sign anything.

  • Rebuild SDE yourself from the tax returns — don't accept the broker's number.
  • Apply a realistic INDUSTRY multiple range (most small boring businesses trade ~2–4× SDE; higher for recurring-revenue or low-owner-dependence).
  • Adjust the multiple DOWN for: customer concentration, owner dependence, declining revenue, short lease, single-supplier risk.
  • Adjust UP for: recurring revenue, documented systems, diversified customers, a manager already in place.
  • Cross-check with a payback test: at the suggested price and SDE, how many years to recoup your cash? 3–5 years is typical; much longer needs a reason.
  • Run the debt-service test: after the seller note and any SBA loan payment, does the business still throw off cash for YOU to live on? If the DSCR is under ~1.25–1.5, the deal is too tight.
  • Sanity-check against asking price: if the multiple implied by the ask is well above the industry range, you need a documented reason or a lower offer.
  • Always leave working-capital headroom — buying a business with no cash buffer is how good businesses die in month two.

8. Hard walk-away triggers

Discipline is an edge. Any one of these, unresolved, is reason enough to walk — there is always another deal.

  • Seller won't produce tax returns, or the returns don't reconcile with the P&L and bank statements.
  • Revenue is materially concentrated in one customer who is month-to-month or leaving.
  • The business cannot run without the seller, and the seller won't commit to financing or a real transition.
  • Undisclosed liabilities, back taxes, or active litigation surface during diligence.
  • The lease can't be assigned, or is about to expire with no renewal.
  • The numbers only 'work' if you accept undocumented add-backs.

Have a specific deal in mind?

Run it through the BizDealIQ AI Deal Analyzer for a fair-value range, a SOWS acquisition score, and a seller-financed offer structure — with the valuation and financing math computed in code.

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BizDealIQ provides educational estimates only — not financial, investment, tax, legal, or business-valuation advice. Multiples and outputs are rules of thumb, not appraisals. Always do your own due diligence and consult licensed professionals before making an offer or purchasing a business.