DUE DILIGENCE CHECKLIST – BUYING OR SELLING SMALL BUSINESS
Use the due diligence checklist for buying a small business pdf that you can download here. It’s equally helpful when selling a small business. Use the checklist once you have secured a buyer, made it through negotiations, and finalized a purchase agreement. The clock starts ticking for your closing date—even before due diligence is done. The purchase agreement should identify the projected closing date. Do not assume you have plenty of time—you don’t! Even six or eight weeks will go by quickly, and there is a number of things to keep on track—for both yourself and your buyer.
At this point, you become the “project manager” for the closing process. You must manage the process proactively, do not assume the buyer is doing what they should, or you will have delays, and the deal could even fall apart. Make sure you each have copies of the closing checklist with your respective responsibilities identified, and touch base with the buyer once or twice a week on their progress. For example, per this checklist, make sure the buyer is getting their business entity formed, securing business insurance, dealing with any licensing requirements, finalizing any lease issues, processing franchise applications, etc. Financing is also a critical time issue.
The buyer must contact a lender early and submit a complete package as soon as possible. Financing, particularly with a Small Business Administration (SBA) loan, can drag out if the buyer—or you—do not respond immediately with all the additional items the lender requests.
I Finalize Purchase Price and Settlement Adjustments
- Perform final inventory count and adjust as necessary
- Prorate the following items to the date of Closing
- Rent and CAM charges
- Adjust security deposit for Landlord claims
- Utilities (electric, gas, water, sewer, phone, etc.)
- Adjust for utility deposits, if transferred
- Advertising (yellow pages, gift cert., coupons, etc.)
- Equipment leases (postage meter, machinery, etc.)
- Service agreements (janitorial, maintenance, etc.)
- Insurance (if using same policies)
- Employee benefits (vacation time, contributions, etc.)
- Taxes (Personal Property, Real Estate, etc.)
- Dues and subscriptions
- Licenses, permits, and fees
- Work in progress
- Closing and Escrow fees
- Other
II. Real Property
- New Lease Agreement, Lease Assignment, or Sub-Lease
- Appraisal and Inspection Report (if purchasing real estate)
- Transfer all utilities (electric, gas, water, phone, etc.)
- Final walk-thru inspection
- Other
- Other
- Other
III. Furniture, Fixtures, and Equipment
- Transfer any equipment leases (vehicles, machinery, etc)
- Appraisal and Inspection Report
- Remove items not included in the sale
IV. Finalize Purchase Price and Settlement Adjustments
Final walk-thru inspection to verify working condition
V. Insurance
- Set up new Policies or assume existing policies as appropriate
- General Liability
- Worker’s Compensation
- Vehicle Coverage
- Inland Marine
- Business Interruption
- Key Man
- Health/Dental/Disability/Life
- Property
- Employee Benefits
- Terminate non-transferred Policies
- Other
- Other
- Other
VI. Liabilities
- Outstanding Note(s) – Payoff amount(s) from lender
- Outstanding Line of Credit – Payoff amount from the lender
- Outstanding Tax Liabilities – Payoff amounts
- Outstanding Equipment Leases – Payoff amounts
- Accounts Payable – Payoff amounts
- Withdraw any Personal Guarantees with Vendors, etc.
- Other
- Other
- Other
VII. Other Seller Responsibilities
- Complete Corporate Housekeeping – meetings, minutes, resolutions, update bylaws, etc.
- Consent to Close Forms (Power of Attorney, Spousal, etc.)
- File to change Trade Name
- File to change the address of Registered Agent
- Prepare introduction strategies for clients, vendors, etc.
- Other
- Other
- Other
VIII. Other Buyer Responsibilities
- Entity Formation Articles of Incorporation/Organization Partnership Agreement
- Apply for Federal & State Tax ID Numbers
- Trade Name Registration
- Organizational Meeting and Minutes Open
- Bank Account
- Set up Merchant Account
- Setup Employee Tax Accounts – 941, 940, FUTA, SUTA, etc.
- Setup Sales Tax Account with Local Governments
- Apply for all required licenses and permits
- Consent to Close Forms
- Finalize all financing arrangements
- Prepare introduction strategies for clients, vendors, etc.
- Other
- Other
- Other
VIII. Closing Documents
- Asset Purchase Agreement
- Stock Purchase Agreement
- Purchase Agreement Amend/Extend or Assignments
- Exhibits (FF&E, Inventory, Prorations, Lease, etc.)
- Noncompetition, Nondisclosure, and Non-solicitation Agreement
- Employee Noncompetition Agreements
- Consulting Agreement
- Earn-Out Agreement
- Personal Property Tax Agreement
- Utility and Insurance Agreement
- Contingency Removal Agreement
- Settlement Statement for Seller
- Settlement Statement for Buyer
- Closing Memorandum
- UCC Search (State)
- UCC Search (County)
- Lender Payoff Statements
- UCC Termination
- Credit Check on Purchaser
- Promissory Note & Receipt
- Amortization Schedule
- Security Agreement
- UCC Financing Statement
- Bill of Sale/General Conveyance
- Bulk Sales Instruments (If required by local law)
- Bill of Sale for Vehicles
- Titles for Vehicles
- Odometer Statements for Vehicles
- Application for Transfer of Title for Vehicles
- Lease Agreement, Assignment of Lease, or Sub-Lease
- Assumption of Liabilities
- Assignment of Intangible Property
- Assignment and Assumption of Contracts
- Assignment of Telephone Number
- Assignment of Trade Name
- Assignment of Patent
- Assignment of Trademark and/or Copyright
- Stock Certificates, Options, Warrants, etc.
- Stock Pledge Agreement
- Stock Power
- Certificate of Good Standing for Seller Entity
- Certificate of Good Standing for Buyer Entity
- Corporate/Company Resolutions and Minutes for Seller
VIII. Closing Documents
- Corporate/Company Resolutions and Minutes for Buyer
- Articles of Amendment for Seller
- Change of Address/Name for Registered Agent
- Certificate of Withdrawal of Trade Name
- Certificate of Trade Name or Name Change
- Appraisals/Valuations
- Insurance Binders or Declaration Pages
- Environmental Audits/Assessments
- Code Compliance Forms
- Request for Tax Status Letter
Although we have provided a selling a business checklist, every business transaction has its own unique factors. Each closing checklist should be prepared according to the specific needs of the transaction. The following checklist is a general guideline for the steps to be taken in preparation for closing. It will help you understand the scope (and the urgency) of the things you need to do, so you can successfully get your deal to closing. The overall concepts will remain largely the same but, again, be sure to talk with your attorney regarding the specific requirements of your transaction and your jurisdiction, as these can vary substantially. Modify this checklist as is appropriate for your specific situation. You can also download our free Ultimate Sell Your Business Faster Guide by clicking here.
