Due diligence is the structured investigation a buyer, investor, or strategic partner runs before signing a definitive agreement. In M&A, growth equity, and strategic partnerships, diligence aims to verify historical performance, evaluate cash flow, and confirm that the business has sustainable earnings.
Why choose FieldSignal for this work: to prioritise the diligence questions that need external evidence. Commission customers, former operators and specialist practitioners against a defined brief, with senior research ownership and published pricing.
A due diligence checklist turns that diligence investigation into a clear list of documents, questions, interviews, and analyses. It helps you assess a target company before committing capital, setting fair market value, or negotiating SPA terms.
This guide focuses on middle-market deals, roughly $10M to $500M in enterprise value, where time, cost, and data quality matter. It's written for PE/VC associates, corporate development teams, consultants, and founders doing their first formal due diligence process.
Expert calls and customer interviews, including work run through providers like FieldSignal, are now standard inputs to a modern due diligence checklist.
You'll learn:
- What a diligence checklist should include
- How the diligence process works from LOI to close
- Which financial, legal, operational, and commercial checks matter most
- How to use primary research for better informed decision making
What Is a Due Diligence Checklist?
A due diligence checklist is a categorized roadmap for reviewing a seller's company across financial, legal, operational, commercial, tax, technology, HR, and reputational areas.
- Converts a broad due diligence process into tasks, data room requests, and stakeholder interviews
- Covers the four core pillars: Financial, Legal, Operational, and Commercial
- Changes by deal type, including majority buyout, minority growth investment, and acqui-hire
- Changes by sector, including SaaS, manufacturing, healthcare, fintech, and financial institutions
- Reduces missed potential risks and keeps the due diligence team aligned
- Supports faster investment committee review, enabling informed decision making
- Includes documents, market interviews, customer due diligence, and risk assessment workstreams
Overview of the Due Diligence Process
The due diligence process in mergers and acquisitions typically includes preparation, information gathering, analysis and evaluation, report and recommendations, and negotiation and decision-making. In middle-market deals, this usually happens during a 30 to 90 day exclusivity period after LOI or term sheet.
Teams increasingly run pre-DD checks before LOI to avoid wasting time on a potential deal that has obvious financial risk, regulatory problems, or weak customer relationships.
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Define scope. Start with the deal thesis, risk appetite, sector issues, and whether enhanced due diligence is needed.
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Build the checklist. Select relevant sections, assign owners, and set deadlines for both the buyer and external advisors.
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Review the data room. Request organizational documents, financial records, contracts, tax files, and operating reports.
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Run expert and customer work. Use expert consultations, customer interviews, and supplier calls to test management claims.
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Analyze findings. Financial due diligence starts early, while legal, tax, commercial due diligence, and operational due diligence run in parallel.
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Negotiate terms. Findings shape price, covenants, indemnities, escrow, earnouts, and closing conditions.
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Sign off. Final reports support informed decisions by the acquiring company and the investment committee.
Core Components of a Due Diligence Checklist
A comprehensive due diligence checklist serves as a roadmap for conducting thorough investigations into a target company's operations, finances, and legal standing, ensuring that potential acquirers understand the company's strengths, weaknesses, risks, and opportunities.
- Target overview: history, ownership, strategy, reason for sale, headline KPIs
- Financial due diligence: financial statements, working capital, debt, forecasts, quality of earnings
- Legal and regulatory: legal structure, contracts, litigation, legal compliance, regulatory compliance
- Operational due diligence: company's operations, systems, KPIs, supply chain, capacity
- Commercial due diligence: market analysis, competition, customer base, growth prospects
- Technology and data: infrastructure, intellectual property, R&D, cybersecurity, trade secrets
- Tax and structure: tax laws, liabilities, transaction structure, tax diligence
- People and leadership: turnover, key-person dependencies, employment contracts
- ESG and reputation: environmental exposure, adverse media, supply chain standards
For smaller deals, combine legal, regulatory, and tax into one workstream, but don't skip material items.
Target Company Overview & Strategic Fit
Start with basic context. You need to know what the business is, who owns it, why it's for sale, and how it fits the acquiring company.
- Request incorporation details, jurisdictions, and each legal entity in the group
- Request cap table as of 31 December 2025, ownership changes, and capitalization records
- Review current business model, revenue streams, product lines, and geographic footprint
- Assess why owners are selling now and whether the timing signals hidden liabilities
- Review customer segments, ARR, gross margin, churn, utilization, and backlog
- Assess market concentration risk, founder dependency, and upcoming industry specific regulations
- Run a strategic fit review for acquiring and target companies, including integration fit and projected post-acquisition performance
Financial Due Diligence Checklist
Financial due diligence is the core of most deal checklists. Financial due diligence (FDD) is a comprehensive evaluation of a business's financial condition, conducted prior to a sale, merger, or acquisition to ensure informed decision-making.
The financial due diligence process involves a thorough review of financial data, including revenues, profitability, growth trends, required working capital, and short- and long-term debts. FDD aims to uncover hidden liabilities and validate the accuracy of financial statements, influencing the terms and structure of the Sales and Purchase Agreement (SPA).
- Request audited historical financial statements for the last 3 to 5 fiscal years
- Request income statements, balance sheets, cash flow statements, trial balances, and management accounts through the latest month
- Review revenue quality, recurring vs one-off sales, seasonality, cohort behavior, and customer profitability
- Analyze target's financial performance, financial performance trends, and the target's financial health
- Confirm the target company's financial health through bank statements, tax filings, and board reports
- Analyze net working capital using a target NWC pegged to the trailing 12-month average through March 2026
- Calculate net debt, including interest-bearing debt, leases, guarantees, off-balance-sheet items, and contingent liabilities
- Review financial projections for 3 to 5 years, test assumptions, and run downside cases
- Test fair market value using normalized EBITDA, cash conversion, and comparables
- Buy-side FDD focuses on pricing, SPA protection, and mitigating risks
- Sell-side FDD prepares the seller's company to defend adjustments before buyer diligence
Key Financial Due Diligence Workstreams
Use this section for thorough analysis before price negotiations.
- Revenue analysis: recurring revenue, renewals, one-off items, customer concentration, and pricing changes
- Margin analysis: gross margin decline, cost inflation, mix shift, and unsustainable promotional spend
- Working capital and cash conversion: aging, collections, deferred revenue, inventory, and supplier terms
- Net debt and debt-like items: leases, deferred consideration, unpaid taxes, debt covenants, and guarantees
- Capex trends: maintenance capex, growth capex, physical property, equipment needs, and 3-year requirements
- Management interviews: accounting policies, revenue recognition, financial reporting, and one-off adjustments in the last 24 months
- Data integrity: reconcile financial information across financial records, tax filings, bank statements, and financial transactions
Legal, Regulatory, and Customer Due Diligence
Legal due diligence reviews the target business's legal structure, contracts, litigation history, and compliance with regulations to identify any legal risks or liabilities. Due diligence also uncovers potential lawsuits, ownership issues, and regulatory risks.
Corporate & contracts
- Request articles of incorporation, bylaws, operating agreements, meeting minutes, shareholder agreements, and other corporate records
- Review key customer agreements, supplier contracts, leases, IP registrations, and debt covenants
- Material Contracts scrutiny involves analyzing customer agreements, supplier contracts, leases, and debt covenants to understand transferability
- Check assignment, change-of-control, termination, exclusivity, and pricing clauses
- Review intangible assets, intellectual property, software licenses, and trade secrets ownership
Regulatory
- Request licenses, registrations, audits, inspection reports, and regulator correspondence
- Confirm applicable laws, regulatory requirements, and industry specific regulations in each jurisdiction
- Review litigation history since at least 2020, including past, pending, or threatened lawsuits, regulatory investigations, disputes, and settlement agreements
- Map potential legal risks into representations, warranties, covenants, indemnities, and escrow
Customer due diligence / AML
- Review KYC/AML policies, sanctions screening, and financial crime controls
- Assess the customer's risk profile, suspicious transactions, and handling of a politically exposed person
- For secured lending or asset-backed products, verify customer's real assets and source-of-funds evidence
- Confirm customer due diligence standards used by the target match current rules
Operational Due Diligence Checklist
Operational due diligence focuses on evaluating the target's operational efficiency, processes, systems, and key performance indicators to identify strengths and weaknesses. Assessing physical and human capital assets is vital to ensure the business runs smoothly during due diligence.
- Request the organizational structure, reporting lines, and management dashboards
- Review sales operations, customer success, fulfillment, manufacturing, and support processes
- Assess major KPIs used by management and whether they drive the right behavior
- Map suppliers, single-source dependencies, logistics partners, and 2024 to 2025 contract terms
- Review facilities, locations, utilization, maintenance schedules, insurance, and capex requirements over the next 3 years
- Assess business continuity plans, disaster recovery tests, cybersecurity protocols, and insurance coverage
- Identify bottlenecks, manual workarounds, automation gaps, and scalability limits
People, Leadership, and HR Processes
Human Resources analysis in due diligence includes examining employee turnover, key-person dependencies, and employment contracts.
- Request management biographies, employment agreements, non-compete and non-solicit clauses, and change-of-control terms
- Review headcount by function as of 31 March 2026 and hiring or rationalization plans
- Analyze attrition rates, engagement survey results, and founder dependency
- Review compensation, bonus plans, equity plans, benefits, and labor law compliance by country
- Run leadership reference calls where management quality is central to the deal thesis
Commercial Due Diligence & Market Assessment
Commercial due diligence involves conducting market analysis to evaluate the target company's market position, customer base, competition, and growth prospects. Market position research investigates competitive advantages, industry trends, and the threat of new market entrants.
Customer Concentration analysis ensures no single client accounts for an overly large percentage of overall revenue. In lower middle-market deals, one customer above roughly 25% of revenue often creates a valuation discount.
- Request TAM/SAM/SOM, 2023 and 2024 market reports, and internal strategy decks
- Review competitors, share-of-wallet, new entrants, and recent market exits
- Analyze top customers, top 10 revenue concentration, churn, NPS, CSAT, and renewal history
- Conduct customer interviews, expert calls, supplier checks, and win/loss analysis
- Use FieldSignal to source former employees, customers, and suppliers for structured diligence interviews
- Convert insights gained into a commercial risk memo for the investment committee
Risk Assessment and Ongoing Monitoring
The checklist must end in a structured risk assessment. Conducting thorough due diligence helps uncover hidden issues or liabilities early on, enabling parties to address them before finalizing the deal and minimizing the chances of post-acquisition surprises or disputes.
- Rate each risk by likelihood, impact, owner, and mitigant
- Categorize risks as financial, legal, operational, commercial, regulatory, tax, technology, ESG, or reputational
- Use enhanced due diligence for high-risk jurisdictions, cross-border structures, sensitive technologies, sanctions exposure, or complex ownership
- Add deeper founder checks, beneficial ownership reviews, adverse media, and legal opinions where needed
- Document every step for compliance and audit purposes, especially in regulated industries
- Plan post-close KPIs, integration milestones, and follow-up checks
How to Build and Use Your Own Due Diligence Checklist
A strong checklist is practical, not exhaustive. It should drive a comprehensive analysis where it matters and avoid low-value requests that slow the process.
- Define the deal thesis and the main risks to test
- Select checklist sections by sector, deal size, and control level
- Tailor questions to tax laws, regulatory requirements, technology exposure, and customer base
- Assign owners, deadlines, data room folders, and interview leads
- Run the diligence process using spreadsheets, project tools, and structured call notes
- Consolidate findings into one memo with recommendations and open issues
- Keep a living checklist that captures lessons, red flags, and sector-specific requirements
- For smaller deals, prioritize materiality and defer nice-to-have detailed analysis
- Compare each provider's current written proposal, including call charges, minimum spend, optional subscriptions and deliverables.
Conclusion & Next Steps
Due diligence is a strategic imperative in M&A transactions. It can mean the difference between a successful undertaking and a costly setback. Robust due diligence activities enhance transparency and trust between the acquiring and target companies, which is vital for effective integration planning post-transaction.
Build a checklist that fits your deal size, sector, and risk appetite, but always cover financial, legal, operational, and commercial fundamentals.
Use FieldSignal to prioritise the diligence questions that need external evidence
Choose FieldSignal to prioritise the diligence questions that need external evidence. Start with customers, former operators and specialist practitioners, selected against your research question.
Use FieldSignal for the commercial primary-research workstream. Your accountants, lawyers and technical advisers retain their specialist responsibilities.
Ask for a written scope covering recruitment, interview design, reviewed transcripts and synthesis. FieldSignal's senior team can own the research workstream your brief defines. FieldSignal publishes call rates and research packages. You can commission a project without a required annual retainer or minimum commitment.
Ask for findings that connect interview evidence to your valuation, operating assumptions and remaining diligence questions.
Share your checklist, valuation sensitivities and current evidence gaps. Get a FieldSignal research quote to agree the expert criteria, deliverables and budget.