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- The importance of conducting thorough due diligence before submitting a Letter of Intent (LOI).
- A comprehensive list of the information and questions you should request from the seller.
- Key areas to focus on to ensure you make an informed decision about the business you’re considering.
Before submitting a Letter of Intent (LOI) to acquire a business, you must perform rigorous due diligence. This process involves gathering and analyzing critical information to ensure that you’re making a sound investment. A successful acquisition hinges on the quality of your due diligence, and this checklist will help you thoroughly assess a business’s financial health, operations, competition, customer base, and more.
The goal of Pre-LOI diligence is to confirm the accuracy of the seller’s representations and to identify any red flags that could affect the value or viability of the business. This guide provides a breakdown of the most important documents and questions you should focus on as part of your due diligence.
What’s Inside
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Information Request List
- Monthly Profit and Loss Statements & Balance Sheets (last 3 years)
- Last 3 Tax Returns
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General Business Questions (8)
- Ownership Structure and History
- Key Personnel and Staff
- Legal Concerns, Lawsuits, and Major Claims
- Impact of COVID-19 on Sales
- The Roles of Business Owners and Staff
- Unionized Employees
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Competition Analysis (2)
- Competitive Edge and Differentiation
- Pricing vs. Competitors
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Financial Overview (5)
- One-Time Events Impacting Financials
- Profitability vs. Industry Average
- Company Growth Rate vs. Industry
- Lifestyle Expenses and Their Impact
- Loans/Lines of Credit
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Customer Insights (3)
- Customer Acquisition and Retention Strategy
- Problems Solved for Customers
- Revenue Breakdown by Customer
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Sales & Marketing Review (4)
- Digital Presence and Marketing Management
- Advertising and Marketing Budget
- Customer Acquisition Channels
- Pricing Strategy
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Future Prospects (5)
- Growth Potential and Expansion Opportunities
- Risks and Threats
- Recession Performance and Stability
- Industry Outlook
- Key Staff and Their Reactions to Acquisition
Key Content Highlights
Before you get into the specific questions, the first step in the due diligence process is to ask for key financial documents. These documents give you a snapshot of the business's financial health and will form the foundation of your analysis.
The Monthly Profit and Loss (P&L) & Balance Sheet from QuickBooks or accounting system for the last 3 years
These documents will provide you with detailed insights into the business's revenue, expenses, profits, and financial position. They are essential for assessing whether the business is financially viable.
Last 3 Tax Returns
The tax returns will help you verify the accuracy of the financial statements, including any claims about revenue and profits. They also provide insight into the business’s tax liabilities and any potential issues.
By following this Pre-LOI due diligence checklist, you’ll gather essential insights to make an informed and confident decision before submitting an LOI. The information you uncover will be invaluable in determining whether this acquisition is the right fit for you and if the business is worth the investment.
Need more guidance?
If you’d like to learn more about acquiring a business, many of the resources we discussed above—along with in-depth guides, templates, and checklists—are available through our Acceleration Program. By signing up, you gain exclusive access to essential tools and resources to support every stage of your acquisition journey. Set up a call with us through the form below, and we'll be in touch to help you fast-track your path to successful business ownership.
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