Due Diligence Checklist
100+ items to verify before buying a business in India
How to use this checklist
Work through each section systematically during your due diligence period. Request documents early, track what you've received, and note any concerns. For a detailed explanation of each area, see our Due Diligence Guide.
| Category | Items | Primary Reviewer |
|---|---|---|
| Financial | 17 items | CA + Buyer |
| Tax Compliance | 14 items | CA |
| Legal | 19 items | Lawyer + Buyer |
| Operational | 13 items | Buyer |
| Customer | 10 items | Buyer |
| HR | 15 items | Lawyer + CA |
💰Financial Due Diligence
📋Tax Compliance
⚖️Legal Due Diligence
⚙️Operational Due Diligence
👥Customer Due Diligence
👔HR Due Diligence
🚨 Red Flags to Watch For
- •Cash revenue that can't be verified — If bank deposits don't match reported revenue, you can't trust the numbers
- •Single customer >25% of revenue — Losing one relationship could tank the business
- •Tax non-compliance or pending disputes — These become your problem after acquisition
- •Key employees planning to leave — Especially if they have critical customer or technical relationships
- •Seller won't provide documents or is evasive — Transparency issues early usually mean bigger problems later
- •Declining revenue without clear explanation — Understand the cause before proceeding
- •Pending litigation or regulatory issues — Unknown liability exposure
Pro Tips for Effective Due Diligence
Request documents upfront
Send your complete document request list at the start. Waiting for documents extends timelines unnecessarily.
Use a data room
Ask the seller to upload documents to a shared folder. Track what's received vs. outstanding.
Hire professionals
For deals over ₹25-50 lakh, hire a CA for financial review and a lawyer for legal review. Worth every rupee.
Talk to customers
Customer reference calls are invaluable. Ask about satisfaction, likelihood to continue, and concerns.
Visit in person
Spend time at the business. Observe operations. Meet employees. You'll learn things documents won't show.
Document everything
Keep detailed notes. Create a due diligence report summarizing findings, concerns, and negotiation points.
For Each Issue Found:
- Quantify — Calculate financial impact where possible
- Document — Keep evidence and notes
- Categorize — Deal-breaker, price adjustment, or accept with protections
- Negotiate — Use findings in price/terms discussions
Frequently Asked Questions
How many items should I verify before proceeding?
Aim to verify 100% of material items—anything that could significantly impact value or operations. Some items may not apply to every business (mark as N/A), but every applicable item should be checked. Material items include: revenue and profit verification, all significant liabilities, key contracts, critical licenses, and tax compliance. For immaterial items (small contracts, routine licenses), sampling may suffice. If you can't verify a material item because documents aren't available, that itself is a red flag requiring risk assessment.
What if the seller can't provide certain documents?
Missing documents are yellow or red flags depending on what's missing—investigate why before deciding how to proceed. Common reasons include: documents never existed (informal businesses), documents lost, seller hiding problems, or documents with third parties (like banks or landlords). If critical documents can't be obtained, you have options: request that seller obtain them as closing condition, adjust price to reflect increased risk, require stronger indemnification, or walk away if the gap is too significant. Never close on a transaction with major verification gaps.
How do I handle issues I discover?
Use discovered issues constructively in negotiations—quantify impact and propose specific remedies rather than just demanding price cuts. Categories of response: (1) Deal-breakers that cause you to walk away, (2) Issues requiring price adjustment based on quantified impact, (3) Issues addressed through deal structure (escrows, earnouts, indemnification), (4) Issues you accept with open eyes. Present findings professionally with documentation. Rather than "I found problems, cut the price," try "Due diligence revealed ₹8 lakh in unfunded EPF liability and ₹5 lakh in obsolete inventory; I propose reducing price by ₹13 lakh or seller addressing these before closing."
Should I share this checklist with the seller?
Yes, sharing your due diligence request list upfront helps sellers prepare documents efficiently and signals your professionalism. Sending a comprehensive document request list immediately after LOI signing is standard practice. It sets expectations for the scope of your investigation, gives sellers time to gather materials, and establishes a businesslike approach. However, keep your evaluation notes and findings private until you're ready to negotiate—you don't need to share what you've discovered or your concerns until it's strategically appropriate to discuss pricing adjustments.
Related Resources
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