What is Due Diligence?
Definition
Due diligence is the comprehensive investigation process a buyer conducts before acquiring a business—verifying financials, reviewing contracts, assessing operations, and identifying risks.
Due Diligence Checklist for Trade Businesses
Financial Due Diligence:
- 3 years of tax returns
- P&L and balance sheets
- Accounts receivable aging
- Accounts payable
- Bank statements
Operational Due Diligence:
- Customer list and concentration
- Employee roster and compensation
- Equipment list and condition
- Vehicle fleet and maintenance records
- Service contracts and recurring revenue
Legal Due Diligence:
- Business licenses and certifications
- Lease agreement and assignment
- Pending or threatened litigation
- Insurance policies
- Non-compete agreements
Common Due Diligence Red Flags
- Declining revenue: Consistent downward trend over 3 years
- Customer concentration: Any customer >40% of revenue
- Key employee risk: Lead technician planning to leave
- Pending lawsuits: Unresolved legal issues
- Equipment age: Fleet requiring major CapEx
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