Due diligence

For a business: bank statements against reported revenue, customer concentration, supplier contracts, whether the profit survives the owner leaving. For a property: structure, title, actual rents received rather than advertised.

The rule of thumb is that anything a seller resists showing you is the thing you most need to see. Time spent here is the cheapest risk reduction available anywhere.

Start with customer concentration, because it kills more small deals than anything else. If one client is 40% of revenue, you are buying a relationship rather than a business, and the price has to reflect the chance that the relationship leaves with the seller. Under 10% each is comfortable; above 25% is a negotiation, and often a reason to structure payment over time.

Three documents settle most questions on a small acquisition: bank statements for twenty-four months, tax returns for the same period, and a list of every recurring contract with its end date. Where those three disagree with the seller's spreadsheet, the spreadsheet is the one that is wrong, and how the seller reacts to being shown the gap tells you the rest.