Questions to Ask Before Acquiring a Business
Diligence is less about volume of documents and more about asking questions whose answers would change your decision. The list below is organized the way a review typically unfolds, from how the business earns to how it will transition.
Revenue and customers
The goal is to understand not just how much revenue exists, but how reliably it repeats and who controls the relationships behind it.
- What share of revenue comes from the top five customers?
- How much revenue is recurring, contracted, or under a service agreement?
- How has average ticket and job volume moved over the last three years?
- Which relationships are held personally by the owner?
- Have prices been raised recently, and how did customers respond?
Financial detail
Financial questions should reconcile the story the seller tells with the records the business produced.
- Do tax returns reconcile to the internal financial statements?
- What add-backs are claimed, and what documents support them?
- What capital expenditure has occurred, and what is now due?
- How large is the working capital requirement through a normal season?
- What is the aging profile of receivables?
People and operations
The team determines whether the business keeps performing after the owner leaves.
- Who runs the day-to-day if the owner is unavailable for a month?
- What is turnover among technicians or key staff?
- Are licenses held by the company or by an individual?
- What software systems are in use, and is the data reliable?
- Which processes exist only in someone's head?
Legal, risk, and transition
Finally, the questions that determine what liabilities travel with the business and how the handover will actually work.
- Are there pending disputes, warranty claims, or regulatory issues?
- What contracts require consent to assign?
- What insurance history and claims experience exists?
- How long will the seller stay, in what role, and on what terms?
- What will customers and employees be told, and when?
The takeaway
Good diligence is a short list of decisive questions asked thoroughly, not a long list of documents collected passively.
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This article is part of a broader set of subject pages covering business development, business acquisitions, and real estate investing. You can also read more about Simon Leizgold.
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