Due Diligence 101: What to Check Before You Make an Offer
Due diligence isn't one step that happens after you're under contract. It runs in two waves: a light, self-directed check you do before you ever put a number in writing, and a much deeper review that happens after a letter of intent (LOI) gives you exclusivity and real access to the seller's records.
What you can check before you make an offer
At this stage you're working with whatever the listing, the broker, or the seller has already shared, not a full data room. The goal is to catch anything that would change your offer or rule the business out entirely, before you invest more time.
- Revenue and earnings trend. Is the seller's discretionary earnings (SDE) trending up, flat, or down over the last 12 to 24 months, and does that match the story the listing tells?
- Revenue concentration. How much of the business depends on one customer, one traffic source, one supplier, or one marketplace account. Heavy concentration doesn't disqualify a listing, but it should shape your offer.
- Platform and account health. For an online business, this means checking the standing of the Amazon seller account, ad accounts, payment processor, or hosting setup the business actually runs on. A thin or flagged account history is a real operational risk.
- Public reputation. Reviews, social presence, and any visible customer complaints. A pattern of recent negative reviews often shows up before it shows up in the numbers.
- Consistency between story and numbers. Whether the seller's explanation for a dip, a spike, or the reason they're selling actually lines up with what the financials show.
None of this requires a signed non-disclosure agreement (NDA) or a data room. Most of it is available from public information, the listing itself, and the first round of questions you ask the seller or broker.
What deep due diligence covers after you're under contract
Once your offer is accepted and an LOI is signed, diligence gets much deeper, because exclusivity gives the seller a reason to actually open up their records. That stage is covered in full in the Due Diligence, Negotiation & Deal Structuring pillar:
- A quality of earnings (QoE) report independently rebuilds the seller's real earnings from source data instead of trusting their summary.
- The letter of intent is what sets the diligence period, the exclusivity window, and the terms that are and aren't binding while you dig in.
- Negotiating price and terms is where whatever diligence turns up actually gets used to adjust the deal.
Red flags worth catching early
A few findings are worth acting on before you make an offer at all, rather than waiting to discover them later:
- Numbers that don't reconcile with basic public checks, like traffic estimates that don't match what a free analytics tool shows, or reviews that contradict a growth story.
- A seller who won't answer specific questions about why they're selling, why a number moved, or what's included in the sale.
- An account or platform dependency with a visible history of past violations or suspensions.
Catching these early doesn't just save you from a bad deal. It also sharpens the offer you do make, since a well-informed offer that accounts for a real risk is taken more seriously than one that ignores it and gets revised down later.
Next: once your early checks hold up, making an offer is where that homework turns into an actual number.