Pillar guide
Due diligence checklist for buying a business
A printable, source-backed checklist organized by track — Financial/QoE, Legal, Operational, New York-specific, and Risk. Each item documents what to request, who reviews it, and what a green/yellow/red outcome looks like.
On this page8 sections
How to use this checklist
Diligence runs in four tracks in parallel, not in sequence. Your attorney handles legal, your CPA handles financial/QoE, you (often with your broker) handle operational, and the New York-specific track is jointly owned. A good deal timeline under LOI is 30 to 90 days; build the timeline into your LOI rather than asking for an extension later.
| Track | What it answers | Who normally reviews it |
|---|---|---|
| Financial / QoE | Is the reported cash flow real, repeatable and available? | You, then a CPA or QoE analyst |
| Legal | What are you actually acquiring, and what follows it? | A New York business attorney |
| Operational | Does the business run without the current owner? | You, with the seller and key staff |
| New York-specific | Which state filings, consents and liabilities attach to this deal? | Your attorney and CPA, jointly |
| Risk / red flags | What pattern do the individual problems point to? | You — this is the judgement you cannot outsource |
The SBA lists the documents buyers should expect to review [1] :
- At a high level: letter of intent
- Confidentiality agreement
- Contracts and leases
- Financial statements
- Tax returns
- Sales agreement
- Purchase-price adjustment
The list below goes deeper.
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Financial / Quality of Earnings
Reviewed by: Your CPA
Go deeper: quality of earnings · SDE versus EBITDA · working capital · customer concentration.
Legal
Reviewed by: Your attorney
Go deeper: asset versus equity purchase · lease assignment · non-competes · escrow, holdbacks and indemnities · purchase price allocation.
Operational
Reviewed by: You + your broker
Go deeper: what happens to employees · buying from a retiring owner · environmental diligence and Phase I.
New York-specific (don't skip)
Reviewed by: Attorney + CPA + you
Go deeper: bulk-sale and successor liability · UI experience rating · NYC Commercial Rent Tax · liquor licence transfer · NYC food service permits · food permits outside NYC · home improvement licences.
Risk / red flags
Reviewed by: You + CPA + attorney
Red flags — a diagnostic, not just a list
Most lists of "red flags" are laundry lists. A more useful question is: what pattern does this red flag point to?
- Revenue up, gross margin down. Pattern: the business is buying revenue — cutting price to grow volume. Structural. Often gets worse, not better, post-close.
- Payroll below BLS benchmarks. Pattern: owner is paying under-market wages to make SDE look better. Post-close, wages rise to market and SDE drops. Compare to BLS QCEW (county + industry) and OEWS (occupation) [7] [8] .
- One customer > 25% of revenue. Pattern: customer is effectively the asset. Price as if that customer might leave (because they might).
- Recurring "one-time" expenses. Pattern: the seller is dressing up ongoing costs as add-backs. The QoE analyst catches this by asking for the prior three years of GL detail.
- Family members on payroll. Pattern: if the family member does real work and you'll need to replace them, the SDE is overstated by their salary.
- Declining owner compensation in last 12 months. Pattern: pre-sale earnings inflation. The owner cut their own salary to inflate SDE for sale. Reconstruct SDE using a trailing three-year average of owner comp.
- Pressure to skip QoE or to use only the seller\'s attorney. Pattern: the seller has something to hide. Walk.
Go deeper: what to do when diligence finds something: retrading.
New York-specific diligence — in more detail
These items are the ones most often missed by national guides and out-of-state buyers. Each one can create post-close liability if mishandled.
- Sales tax successor liability. New York can hold a buyer of a business's tangible personal property liable for the seller's unpaid sales tax unless the buyer follows the bulk-sale / successor-liability process with the NYS Department of Taxation and Finance [2] . The mechanics: either the seller provides a statement certifying no sales tax is due, or the buyer withholds from the purchase price and remits the withheld amount to cover any potential liability. Confirm the current form and process on the Tax Department site before closing.
- UCC-1 lien search. Search the UCC-1 filings against the seller entity at the NYS Department of State [3] . Any liens on equipment, inventory, or receivables must be released or formally assumed at closing — unreleased liens can follow the assets.
- Workers\' comp, statutory disability, Paid Family Leave. Most New York employers must carry these. Coverage must be in force on day one of closing — a gap can expose the buyer to direct liability and penalties [4] . Confirm the seller's coverage and arrange continuation or new policies.
- Unemployment Insurance registration. The buyer entity must register with the NYS Department of Labor, typically via Form NYS 100, when taking on employees [5] [6] . In an entity purchase, the existing UI account may continue; in an asset purchase, the buyer usually opens a new account.
- License transfers. Food service, alcohol, childcare, healthcare, professional services, transportation, and cannabis each have their own NYS licensing authority and transfer rules. Some licenses cannot transfer at all; some require the new owner to qualify individually. Confirm with the relevant authority before LOI, not after.
- Real-property transfer tax. If the deal includes real property, or transfers a controlling interest in an entity that owns real property, New York's RPT and (in NYC) additional taxes likely apply. Review with a New York real-estate attorney.
- NYC-specific overlays. If the business is in NYC, the NYC Business Tax, the Commercial Rent Tax (in certain Manhattan zones), and additional NYC license requirements may apply. Don't assume NYC = NYS for regulatory purposes.
Frequently asked questions
How long should due diligence take?
30 to 90 days under LOI is typical for a small-business acquisition. Smaller and simpler deals can close in 30–45 days; deals involving SBA financing, real property, or licensed industries often need 60–90 days. Build the timeline into your LOI — asking for an extension at day 55 puts you in a weaker negotiating position than asking for what you need up front.
Do I need a CPA for due diligence?
For any deal above roughly $250K purchase price, yes — a CPA running a Quality of Earnings (QoE) review is standard. A QoE is different from a tax return or audit; it's a reconstruction of the business's real cash flow, with add-backs the lender will and won't accept flagged. The cost is typically a fraction of the deal value and frequently saves multiples of its cost in price renegotiation or by killing a bad deal before you close.
What's the difference between legal, financial, and operational due diligence?
Legal diligence (your attorney) verifies entity status, contracts, leases, IP, employment, litigation, and NYS-specific filings like UCC-1 and bulk-sale notice. Financial diligence (your CPA) reconstructs SDE/EBITDA and identifies red flags in the numbers. Operational diligence (you, often with your broker) covers site visits, employee interviews, customer concentration, supplier relationships, and the condition of inventory and equipment. They run in parallel, not in sequence.
What kills deals in diligence?
Not the obvious problems — those are usually already priced in. It's the undisclosed ones: the undisclosed family member on payroll, the undisclosed pending sales-tax assessment, the undisclosed lease renewal the landlord plans to renegotiate at a 40% increase, the undisclosed customer concentration that one account opening would erase. The job of diligence is to find what wasn't in the listing.
What is a UCC-1 search and why do I need one in New York?
A UCC-1 financing statement is a public record that a lender has a security interest in a business's assets (equipment, inventory, receivables). Search the UCC-1 filings against the seller at the NYS Department of State. Any liens that haven't been released at closing can follow the assets to the new owner — meaning you could inherit the seller's secured debt. Get lien releases in writing before close.
What is successor liability for sales tax in New York?
In New York, a buyer of a business's tangible personal property can be held liable for the seller's unpaid sales tax unless the buyer follows the bulk-sale / successor-liability process with the NYS Department of Taxation and Finance. The process typically involves either receiving a certification from the seller that no sales tax is due, or withholding a portion of the purchase price and remitting it to the Tax Department to cover any potential liability. Verify the current form and process on the NYS Tax Department site before closing — the rules have changed over time.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 U.S. Small Business Administration. Buy an existing business or franchise. https://www.sba.gov/business-guide/plan-your-business/buy-existing-business-or-franchise
- 2 NYS Department of Taxation and Finance. Sales and use tax. https://www.tax.ny.gov/bus/st/stidx.htm
- 3 NYS Department of State. Corporation & Business Entity Database. https://apps.dos.ny.gov/publicInquiry/
- 4 NYS Workers' Compensation Board. WCB home. https://www.wcb.ny.gov/
- 5 NYS Department of Labor. Employers. https://dol.ny.gov/employers
- 6 New York Business Express. Business Express portal. https://www.businessexpress.ny.gov/
- 7 U.S. Bureau of Labor Statistics. Quarterly Census of Employment and Wages (QCEW). https://www.bls.gov/cew/
- 8 U.S. Bureau of Labor Statistics. Occupational Employment and Wage Statistics (OEWS). https://www.bls.gov/oes/
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.