Due Diligence

What To Look Out For Before Buying A Business

Richard Besier•2 October 2026•8 min read

you can buy another business. you can't easily un-buy one.

most buyers check the price carefully... and the deal goes wrong on something else.

I'm Richard, founder of Seastone. Seastone finds US owner-operated businesses approaching an exit using public filings, and with a team of five we've helped brokers and investors find and close $20M+ in deal value.

before that i spoke with probably thousands of owner-operators and watched 7 to 9-figure deals happen... and the dealbreakers were usually visible before anyone signed an LOI.

this is the screen i'd run first, in three places: the owner, the numbers, the paper.

one caveat up front: a screen finds reasons to stop, not reasons to buy.

here's what's inside:

• why the screen goes before the LOI
• six red flags, from owner dependence to seller behavior
• five public-record checks you can run on any company
• the operator-first route
• a request list and three walk-away rules
• what to do this week

why the screen goes before the LOI

After an LOI you start spending... an accountant, an attorney... and you start falling for the deal

before it, a no costs you an afternoon

after it, a no costs you fees, weeks of your time, and an owner who now expects you to close

the cheapest time to find a dealbreaker is before you've paid anyone to look for it

and holes in the package are common

BizBuySell's Q2 2026 Insight Report found that only 14% of business owners have had a professional valuation, and 35% say they have no idea what their business is worth

so a thin package is often not dishonest... it's an owner who never had to assemble one

the same report says buyers are getting more selective, and it quotes Vipin Singh saying preparation, clean financials and minimized owner dependence are now prerequisites to a successful close

red flag 1: the owner is the business

the test: what stops working if the owner disappears for 60 days?

write the list... the customers only they talk to, the supplier prices only they negotiated, the licenses in their name, the machine only they can fix, every odd problem that lands on their desk

then price the people you'd hire to cover it. a general manager, a salesperson, a bookkeeper, a technician, etc.

add up what they'd cost and set it against what the owner pays themselves

if the team that replaces the owner costs more than the owner takes out, the advertised earnings aren't yours

"absentee" is the word to question. sometimes it means the owner works from home

Ask for their calendar, the list of what only they can approve, and what the manager actually does

a business is often absentee only until the manager quits... so ask what the manager is paid, what they're promised, and how likely they are to stay

some of this is fixable: undocumented process, missing training and that stuff. customers who are loyal to the person are much harder to fix

just yesterday, I had a call with a client. he told me he once had a deal where he was acting on the buy-side. they had the perfect seller - the numbers made sense, it was a profitable equipment business. At the end, the deal fell apart, because the seller wasn’t ready to fully let go of his business that he grew from 0. just wanted some more time.

the owner is the the business.

red flag 2: the numbers don't tie to anything outside the seller's spreadsheet

don't recompute anything yet... first check that the numbers exist

line up the monthly P&L against tax returns, bank statements, payroll records and sales-tax filings

look for missing months, versions that change between emails, a seller who won't show bank statements, a last 12 to 24 months far stronger than the years before

a tax return alone isn't proof... it's one more document from the seller's side

the test is whether records the seller didn't write agree with the P&L

ask for the bank statements early. how the seller reacts to that request tells you as much as the statements do

hire an accountant with transaction experience (proof of cash or quality of earnings work), not the one who files the seller's taxes. the analysis itself is a CPA's job.

At Seastone, we always recommend our clients that the first thing to ask for is all business bank statements for the last 24-36 months, covering every operating, savings, payment, and related-company account. after that, you want to do a proof-of-cash reconciliation. we help with that.

red flag 3: revenue that won't survive the handover

revenue quality matters more than revenue size

for each of the top customers, find out:

• their share of revenue and of gross profit
• whether there is a written contract or a handshake
• when it expires
• what the termination and change-of-control clauses say
• who holds the relationship: the company, an employee, or the owner

"recurring" that is really month-to-month isn't recurring

a customer who buys from the owner personally is a customer you have to win again

i won't hand you a magic concentration number... the right level depends on the business you’re acquiring. book a call with me here if you need help with this.

red flag 4: things that can't legally or practically transfer

build a transfer schedule: the lease and landlord consent, key contracts, licenses and permits, franchisor approval, vendor terms, domains, phone numbers, software, and any equipment with a lien on it

a business can look perfect and still lose its lease or its license on handover

some licenses are issued to a person and not to the company, and some need re-approval when ownership changes... check the rule for your state and trade with the licensing board

with a retiring owner, look at whose name is on the license first

a contract can look recurring and still allow termination on short notice... a vendor agreement can end when ownership changes

assignment and consent rules belong to your attorney

red flag 5: what public records show before the seller sends you anything

five checks, and i'll stick to how each one works... some state searches cost money, so none of this is free by default

before you start, write down the exact legal name, the state, and every trade name the company uses... you'll need all three

1. UCC liens. the Secretary of State in the company's state keeps financing statements, which are lenders' claims on business assets... the search runs on exactly the name you type, and close-but-different names may not come back, so use the legal name from the state registry
2. the state registry record. look for a lapsed status, a recent name change, or officers who differ from who the seller told you owns the company
3. court dockets. the PACER Case Locator searches federal courts: registration is free, but it charges $0.10 a page and its fee waiver doesn't cover name searches... state and county courts are searched separately
4. labor enforcement. the Department of Labor's Wage and Hour Division publishes enforcement data in its Enforcement Database... back-wage cases are the kind of exposure you want to know about before an LOI
5. safety inspections. OSHA's establishment search shows inspection history by workplace name... check the date the data runs through

honest caveat: records show filings, not the truth... a clean search is not a clean business, and a company can operate under a different name than the one you searched

these are the same kinds of records Seastone reads to find owner-operated businesses approaching an exit... how we weigh them is the product, so that part stays with us

red flag 6: how the seller behaves

slow or missing documents, figures that change between versions, "trust me", pressure to rush, resistance to reasonable conditions, no interest in the handover

behavior is evidence

ask why they're selling in different forms across several conversations... then check the answer against what the records, the customers and the employees show

the broker usually represents the seller, so build your own team: an accountant, a transaction attorney, and for a technical business someone who has run that kind of company

the other way to screen: run it before you own it

a couple weeks ago, I talked with an experienced ETA acquirer who had bought many businesses and learned from the mistakes

he stopped buying unknown companies outright

instead he offers to step in as operating CEO for owners who have reached retirement age, can't keep leading day to day, or want someone to drive growth but aren't ready to sell

he sees the company from the inside, adds some growth, and buys the whole business once it makes sense... or walks if it doesn't

this matters here because every red flag above gets tested from the inside before purchase money moves. and it's the best answer to red flag 1 when owner dependence can't be checked from outside

the limits: it needs an owner who is open to it and a handover role they trust. and it was one conversation, not a trend, so i can't tell you how common it is or how well it works.

how such an agreement is written is for your attorney.

a due diligence list for buying a business, and three walk-away rules

here's what i'd ask for before an LOI, as a due diligence list for buying a business:

• multi-year P&Ls and balance sheets, and tax returns
• monthly financials for the current year
• revenue by customer
• the owner's real role and hours
• an employee roster
• debts and liabilities
• the lease and key contracts
• licenses and permits
• the reason for selling, and the proposed transition

then write your walk-away rules before you meet the owner, while you still have no reason to want the deal:

• earnings can't be traced to evidence outside the seller's files... walk
• records are withheld... walk
• the owner controls both the customers and the know-how, with no real transition... walk

in advance, because sunk cost is real... and it works on first-time buyers hardest: after three weekends and an accountant's invoice, "explainable" starts to sound reasonable

passing the screen is not a green light... it means you've earned the right to pay for proper diligence

what this screen can't tell you

it doesn't value the business, and it doesn't replace a CPA or an attorney

it can't see what nobody filed or wrote down... and public records lag, so a lien or a lawsuit from last month may not show yet

and it says nothing about whether you'd be good at running the company, or whether you'd want to spend ten years doing it

those are separate questions... and they come after the screen, not before it

what i'd do this week

the whole method on one line:

owner → numbers → paper → public records → walk-away rules → only then, pay for diligence

1. send the request list to the next seller you're talking to
2. run the public-record checks on your top three targets
3. write your own three walk-away rules before the next owner meeting

Cheers,

Richard 🥂