Your Acquisition Due Diligence Checklist: How to Identify Deal Killers Early

Closing a deal feels incredible—but closing the right deal is what truly matters. Great acquisitions aren’t just about finding attractive opportunities; they're about avoiding the hidden risks and pitfalls that can derail your investment.

Here’s a practical, actionable checklist to help you spot deal killers early, protect your capital, and confidently acquire businesses that truly deliver value:

1. Financial Red Flags

• Quality of Earnings: Confirm revenue recognition practices, margins consistency, and sustainability of profits.

• Working Capital Issues: Ensure the business has healthy cash flow and manageable inventory, receivables, and payables.

• Debt & Liabilities: Scrutinize for hidden debt, unpaid taxes, or off-the-books obligations.

2. Customer & Market Risk

• Customer Concentration: High reliance on a small number of customers means increased risk—diversification or long-term contracts are essential.

• Market Conditions: Verify that the market isn't shrinking or overly volatile. Growth markets are safer bets.

• Competitive Positioning: Assess how defensible and differentiated the business truly is against competitors.

3. Operational Vulnerabilities

• Owner Dependency: Evaluate if the business relies too heavily on the owner or one key employee, creating potential transition risk.

• Process & Systems: Ensure documented, scalable processes and reliable systems are in place.

• Compliance Issues: Thoroughly review regulatory compliance, legal exposure, and industry-specific certifications.

4. Cultural & Team Alignment

• Cultural Fit: Misalignment in values and management styles can destroy integration and erode value post-acquisition.

• Key Talent Retention: Ensure key employees are motivated and incentivized to remain after the transition.

• Team Stability: Watch out for high turnover rates or widespread employee dissatisfaction.

5. Growth & Scalability Potential

• Realistic Growth Plans: Be cautious of overly optimistic growth projections—validate assumptions independently.

• Capacity for Scale: Confirm the business infrastructure can support planned growth without massive additional investment.

• Synergy Opportunities: Clearly identify and quantify realistic integration and synergy benefits with your existing operations.

Act Now, Protect Your Investment Later

Identifying deal killers early saves you time, money, and headaches down the road. Follow this due diligence checklist carefully to ensure the businesses you acquire will drive real growth, not unpleasant surprises.

Planning strategic acquisitions? Reply to this email if you have specific due diligence challenges or stories to share—I'd love to connect

- Matt