Why this matters

50% of LOIs fall apart in diligence — and most are killed by issues the seller could have fixed months earlier.

Buyers don't kill deals over price first. They kill them over surprises — missing contracts, founder-dependent revenue, untracked add-backs, sloppy systems. This checklist surfaces every one of them before a buyer ever sees your business.

What you'll take away
1

A line-by-line audit covering financials, legal, operations, customer concentration, and systems.

2

The same red-flag list buyers and bankers run against your business — so nothing surprises you.

3

Plain-English fixes for the top deal-killers found in lower middle market diligence.

The four diligence pillars

Every checklist item rolls up to one of four pillars. Score yourself across each — the weakest pillar is your real valuation ceiling.

PILLAR 1

Financial Integrity

Clean, defensible numbers a buyer's QofE provider can't pick apart.

Core objectives
  • GAAP-aligned P&L, balance sheet, cash flow (24+ months)
  • Documented add-backs with supporting evidence
  • Revenue recognition policy & customer concentration map
  • Working capital, AR aging, and inventory health
Milestone at Pillar 1
Numbers a banker would put their name on.
PILLAR 2

Legal & Corporate

No skeletons in the cap table, contracts, or compliance file.

Core objectives
  • Cap table, equity grants, and corporate records cleaned up
  • Customer & vendor contracts (assignability reviewed)
  • IP assignment, employment, and NDA coverage
  • Tax filings, licenses, insurance, and litigation history
Milestone at Pillar 2
Counsel can issue clean reps & warranties.
PILLAR 3

Operations & Transferability

The business runs without the founder in the room.

Core objectives
  • Documented SOPs for every revenue-generating workflow
  • Org chart with named owners (not just the founder)
  • Key-person risk reduced; second-line leaders in place
  • Vendor and customer relationships not owner-dependent
Milestone at Pillar 3
Buyer can step in without the lights going out.

What's inside the checklist

Every line item the smartest buyers run against a lower middle market business — broken into pre-LOI, LOI, and confirmatory diligence.

  • 3 years of GAAP financials and tax returns
  • Trailing twelve months QofE-ready P&L
  • Customer concentration & churn analysis
  • Vendor contracts with assignability flags
  • Cap table & equity grant history
  • IP assignment & employee NDA coverage
  • Documented SOPs for all revenue workflows
  • Org chart with owners and backups named
  • Tech stack inventory & data security review
  • Open litigation, insurance, and compliance log
  • Add-back schedule with supporting evidence
  • Founder-dependency map and transition plan