What Belongs in a Seller Due Diligence Checklist?

What documents do buyers request first?

Each of the four records carries a different proof job. Selected-period financial statements and transaction support show whether reported earnings tie to transactions. A customer agreement and current account note connect revenue to the present relationship. Payroll and a role-coverage note test whether essential work continues without the owner. An equipment lease or material supplier agreement surfaces terms or consent that may affect transfer.

The dates must also agree with the business facts. A contract with two years left needs different context from one approaching renewal. A complete payroll export can still leave pricing approvals or key-account coverage unexplained. Before you send the first packet, ask the finance, commercial, and operating leads to explain those gaps.

Keep this first set focused. The people closest to the facts should be able to check every date and answer every note. The Diligence desk shows where this opening request fits within the broader buyer review.

• Earnings: Can the reported result be traced to a defined period and the transactions behind it?
• Customers: Do current agreements and account facts support the revenue shown in that period?
• Transfer: Which renewal, notice, consent, or assignment terms need closer review?
• Coverage: Who handles essential work when the owner is unavailable?

Can reported earnings be traced to one financial period?

You choose the reporting period before gathering support. If the buyer receives a trailing-twelve-month income statement through June, label that period on the workpaper. A prior-year tax return covers a different span, so ask the finance lead to describe the timing difference in a short note. The buyer can then see why the figures vary before comparing individual lines.

IRS recordkeeping guidance allows a business to use a system suited to its operations when the system clearly shows income and expenses. It describes invoices, receipts, account statements, deposit records, sales records, payment records, and proof of payment as examples of transaction support. ^{[1, 2, 3]} Those sources explain how an entry can be traced. The transaction team still decides which material is relevant and when access is appropriate.

Ask the finance lead to flag any open month, unusual expense, or missing source document. Put the issue and an expected follow-up date beside the report. Once the selected period is coherent, the buyer can move from past earnings to the customer relationships expected to produce future revenue.

• Core reports: income statement and balance sheet for the selected period.
• Comparison records: the applicable tax return and general-ledger detail for material lines.
• Transaction support: an invoice, receipt, deposit record, or proof of payment for an item being traced.
• Open issues: a dated note for a timing difference, unusual line, open month, or missing document.

The customer agreement and current account note

A financial report shows revenue recorded during the selected period. To explain whether a material relationship may continue, you gather the executed customer agreement and a current account note. The note should identify the work being performed, the term, the next renewal date, and the employee who owns the relationship.

Ask the commercial lead to confirm that the written terms and the current business facts agree. An older contract may govern an active account, while the next renewal is handled through a more recent conversation. Capture both facts. If a notice, consent, assignment, or concentration issue needs professional review, name the clause and the person responsible for taking it forward.

Material supplier agreements and leases need the same current check because the signed document supplies the terms while the agreement owner explains the present obligation and any operational constraint. From there, the buyer can see which employees perform the work and maintain the relationships.

• Agreement: the executed document for each material customer relationship.
• Current facts: term, renewal date, work performed, and relationship owner.
• Follow-up: the clause or pending event that needs a named person and a review date.

Payroll records: show who covers the owner's work

Payroll identifies employees and current compensation. The export usually cannot show who prices complex work, approves exceptions, protects a key account, or calls the vendor who solves a recurring problem. Pair the report with a short role-coverage note that names the person who performs each essential responsibility during an ordinary week.

Westfield Services' payroll report lists an operations manager, yet the owner still approves every nonstandard quote. If the owner is away, the manager can collect job details but cannot issue the price. That unfinished responsibility is the useful diligence fact. The operations manager can describe the current limit, and the owner can assign a date for deciding how pricing authority will be covered. Westfield Services is fictional.

Ask your operating lead to run the same test for an ordinary week when you are unavailable. Record the person who actually takes each responsibility and flag every duty that returns to you. The confidentiality guide covers the release controls for sensitive payroll, customer, and contract information.

How should you handle missing or outdated documents?

You keep the dated document and state the missing fact plainly. A customer report through March may be accurate even though an important April renewal remains pending. The commercial lead should name that renewal, describe its current status, and set the date for the next update. A payroll report may be current while the role-coverage note still shows an unanswered owner dependency.

Use one short line for each gap: the document date, the unanswered fact, the person who owns the answer, and the expected follow-up date. This prevents an old schedule from quietly becoming the current account of the business. It also gives the buyer a specific person and date if the issue remains open during review.

Send questions that change reported earnings or proposed adjustments to the earnings quality workstream. Handle release timing and protections with the transaction team. Your preparation workpaper should show the status of each item, while the people responsible for the transaction decide access.

Financial support, customer terms, payroll coverage, and transfer obligations

Use the four rows below. Replace each role label with a person's name and add the document date. Add support to the relevant row as the buyer's question becomes more specific. When the reporting period is coherent and the named people can explain the open facts, those materials can also support a sale-price range estimate. For an outside view of the remaining gaps, you can begin a confidential valuation conversation with the workpaper in front of you.