Due diligence means checking that what the seller has told you is true before you pay. It usually starts once you have agreed a price in principle and signed a non-disclosure agreement, and it is your best protection against an expensive surprise. Use this checklist to work through it.
The money
Ask for at least 12 months of records, ideally two years, and check them against each other.
- Sales records, and bank statements that confirm them.
- The main expenses: rent, salaries, stock, utilities and marketing.
- VAT or tax returns, if the business files them.
- Debts, loans and unpaid bills.
- Money customers owe the business.
- A count of the stock included in the price.
The legal side
- The commercial registration or trade licence: is it active, in whose name, and for which activities?
- The lease: its length, the rent, the renewal terms, and whether the landlord must agree to a transfer.
- The licences and permits the business needs to operate.
- Contracts with suppliers, customers or delivery apps, and whether they can be transferred.
- Any disputes, claims or fines.
The staff
- A list of staff with their roles, salaries and contracts.
- Visas and work permits, and who will sponsor them after the sale.
- End-of-service benefits owed, which in the Gulf can add up to a large sum.
- Whether key staff plan to stay.
The operations
- The condition of the equipment, and whether it is owned or leased.
- The main suppliers and the terms they offer.
- How much of the business comes from the largest customers.
- Online accounts: website, social media, delivery apps and reviews, and how they will be transferred.
- How much of the work the owner does personally.
Red flags
- Sales in the records that do not appear in the bank statements.
- A seller who avoids questions, or will not share documents after an NDA.
- A lease that ends soon with no promise of renewal.
- Pressure to pay quickly, or in cash.
- Sales that are almost entirely in cash, with no records.
After the checks
If you find problems, you can ask for a lower price, ask the seller to fix them before the sale, or walk away. Write anything you agree into the sale agreement, for example that the seller pays debts from before the sale.
Common questions
How long should due diligence take?
For a small business, usually a few weeks. Take the time you need; a seller who pushes you to skip the checks is a warning sign.
Can I see the records before signing an NDA?
Usually not in detail. Sellers share a summary publicly, and the full records only after a non-disclosure agreement.
Who pays for due diligence?
Usually the buyer, including any lawyer or accountant they hire.
Should I hire an accountant?
For anything but the smallest purchase, an accountant can check the records faster and spot problems you might miss.
Where to go next
This guide is general information, not legal or financial advice. Rules and requirements change, so check the details with the relevant authority or a qualified adviser before you act.