Run your first diligence request
Diligence is not a document dump. It is a sequence: each request should either confirm the story the seller told you or expose the gap. Ask in the wrong order and you burn goodwill on paperwork you cannot yet interpret.
Before you ask for anything
Read the listing twice and write down the three claims the price depends on. Recurring revenue at 94%, no customer above 3%, owner working 20 hours a week — whatever they are. Diligence is the process of testing those three claims, in that order. Everything else is secondary.
Most sellers release nothing financial until an NDA is signed, and the ones who do usually regret it. Signing costs you nothing and moves you into the tier where documents actually flow.
The first four documents
Monthly if they have it, annual at minimum. You are looking for the trend and the seasonality, not the exact figures yet.
Anonymized is fine. This tests the concentration claim, which is the single most common reason a deal gets repriced later.
Tells you what working capital the business actually needs to run, which determines what has to be left in at close.
Every EBITDA figure on a small deal has add-backs. You need the list, not the total, and you need to agree which ones a buyer would genuinely not incur.
The second wave
Only once the first four hold up. Asking for all of this upfront signals a tourist rather than a buyer.
- Customer contracts or terms, especially renewal dates and notice periods.
- Employee census: roles, tenure, compensation, and who is on a contract.
- Property lease, with the assignment clause read closely.
- Equipment schedule and any deferred maintenance.
- Tax returns for the same three years, to reconcile against the P&L.
What to read first in each
Red flags worth pausing on
- Tax returns that do not reconcile to the P&L, with no explanation offered.
- A largest customer above 20% of revenue that is also on a short notice period.
- Add-backs that make up more than a quarter of stated EBITDA.
- An owner who cannot describe how the business runs in their absence.
- Documents that arrive as screenshots or reformatted spreadsheets rather than originals.
Every business has something. What matters is whether the seller can explain it plainly and whether the explanation survives one follow-up.
How to ask without burning goodwill
Batch your requests rather than sending them one at a time, say what each document is for, and give a date you will come back by. Sellers are usually running the business while answering you, and the buyer who is easy to deal with in diligence is the one who gets the deal when two offers match.
Use the deal room rather than email. Requests, releases, and versions are tracked in one place, so neither side spends a week arguing about what was sent.