The Small M&A Quick DD Checklist — Documents to Request First and What to Verify

#The Question This Article Answers

What should a small-M&A buyer collect and check first in financial due diligence? This page is written to be used as-is, as a checklist.

The full picture first:

• Request eight documents at minimum: three years of financial statements (with account breakdowns), three years of corporate tax returns, the latest trial balance, loan repayment schedules, monthly revenue history, major customer/supplier lists, director compensation details, and insurance surrender values
• The order of work is verify → compute metrics → compare against benchmarks. Never feed handed-over numbers straight into calculations
• How documents arrive is itself a signal: what comes quickly is well-managed territory; what comes late is where management is weak

I have sold businesses (EXIT) three times, sitting on the seller's side of buyers' DD, and I build DD Tool, a financial DD tool for small M&A. This article turns that experience into a buyer-side working checklist.

#The Document Request List — Eight Items and Why

The first request to the seller (or broker). Each item comes with its purpose — a request without a purpose only burdens the seller, so learn these as pairs.

#	Document	Purpose
1	3 years of financial statements (with account breakdowns)	Earnings and balance-sheet trends; breakdowns expose danger accounts like director loans, advances, and suspense payments
2	3 years of corporate tax returns (with schedules)	Reconciliation against the statements; detects double bookkeeping (one set for the bank, one for the tax office)
3	Latest trial balance	Performance since the last closing date; catches recent deterioration
4	Loan repayment schedules	Full picture of interest-bearing debt; input for net debt
5	Monthly revenue (ideally 24–36 months)	Seasonality, trend, dependence on specific months; signs of revenue shifted across period ends
6	Major customer and supplier lists	Customer concentration risk
7	Director compensation details	Input for normalized EBITDA; total payments to the owner's family
8	Insurance surrender values	Off-book asset value; scale of tax-deferral schemes

Second-round requests (depending on round one): lease agreements, equipment lease list, employee roster and payroll, licenses and permits, receivables aging. Demanding everything at once exhausts the seller and can break the negotiation itself — stage it.

#The Verification Sequence — Verify First, Compute Later

Once documents arrive, check the numbers' credibility before computing any metric. Reversing the order means stacking precise calculations on unreliable inputs.

#Step 1: Reconcile statements against tax returns

Confirm that net income and revenue in the financial statements match the corporate tax return schedules. A mismatch means one of the documents was prepared for a specific audience. In small deals this is the first point to check; if it diverges, ask for an explanation.

#Step 2: Confirm balances exist

• Cash → match against bank book copies or balance certificates
• Borrowings → confirm the full amount against repayment schedules and lender certificates; ask about loans absent from the breakdowns (director or family loans)
• Receivables → tie to invoices and payment history of major customers; use an aging table to spot long-stagnant balances

#Step 3: Confirm the P&L is real

Reconcile monthly revenue against annual revenue and look for unnatural spikes in period-end months. Check whether suppliers in the breakdowns are identifiable, and whether payments to the owner's family companies are mixed in.

#Step 4: Compute the six metrics and compare against benchmarks

With verified numbers, compute normalized EBITDA, net debt, CCC, current ratio, equity ratio, and operating margin, then compare against industry benchmarks. The metrics themselves are covered in detail in the pillar guide, so I won't repeat them here.

#Record How Documents Arrive

From three rounds on the sell side: the response to a document request is information in itself.

• Arrives within days → routinely managed territory; numbers are relatively trustworthy
• Arrives late after repeated reminders → weakly managed territory; scrutinize harder
• "We don't have it" → ask why. A company with no monthly revenue data is run by an owner who doesn't look at numbers

Log request and receipt dates on your checklist — they feed the final judgment.

#Building the Question List

Turn every mismatch into a flat, unemotional question. The template: "Document A shows X, but document B shows Y. Please explain the difference."

Sellers answer what they are asked and rarely volunteer more — not out of malice, but because they cannot judge what matters to you. The completeness of the question list is the buyer's responsibility.

#The Checklist (Save This)

• Requested the eight-item set (logged the request date)
• Logged receipt dates per document
• Reconciled statements against tax returns
• Verified cash, borrowings, and receivables balances
• Reconciled monthly vs. annual revenue
• Identified director pay and private expenses; computed normalized EBITDA
• Compared the six metrics against industry benchmarks
• Sent mismatches to the seller as a question list
• Sorted remaining risks into candidates for price and contract terms

#Summary

The skeleton of a quick DD: eight-document request → verification by reconciliation → six metrics against benchmarks → question list. All of it is doable by the buyer without hiring an accountant.

The metric computation and benchmark comparison can be automated with DD Tool, which I built: enter the financial figures and it computes the six metrics, assigns five-level RAG ratings, and compares against industry benchmarks — without your financial data ever leaving the browser. For the full process, including converting findings into price terms, see the complete guide.