Business Acquisition Due Diligence Checklist

DUE DILIGENCE CHECKLIST — Acquisition of "CleanPro" Commercial Cleaning Service DEAL-BREAKER RISKS (Investigate First): 1. Revenue verification — request 3 years of tax returns AND bank statements. Compare deposits to reported revenue. Cleaning businesses frequently have cash transactions that inflate or deflate reported numbers. 2. Customer concentration — if top 3 clients represent >40% of revenue, one departure could sink the business. Request client list with revenue per client. 3. Employee classification — are cleaners W-2 employees or 1099 contractors? Misclassification exposure in cleaning industry is massive. Request all 1099s and W-2s filed. 4. Contract transferability — do client contracts survive ownership change? Request assignment clause review. 5. Insurance claims history — request 5-year claims history for workers comp and general liability. FINANCIAL DUE DILIGENCE: - Tax returns (2022-2024): compare Schedule C or 1120S to stated revenue - Bank statements (24 months): verify deposits match reported income - AR aging: identify overdue accounts (>60 days = collection risk) - Owner add-backs: legitimate add-backs (owner salary, personal expenses) vs. suspicious ones. Common manipulation: inflating add-backs to make profit look higher VALUATION CHECK: Asking $320K at $85K stated EBITDA = 3.8x multiple. Industry standard for cleaning services: 2.5-4x EBITDA. Price is at upper range — justified only if strong contracts, low customer concentration, trained management team in place.