What Is Due Diligence When Buying a Business in Florida?
Short answer: Due diligence is the period when the buyer verifies that what they were told is accurate, after a purchase agreement with contingencies is signed (some deals start with a letter of intent). In Florida, that means tying tax returns to the books and bank deposits, searching for liens and unpaid state taxes, confirming the entity and licenses, reading contracts and the lease for assignment terms, and inspecting the assets. If a problem turns up, the buyer can ask for a fix, renegotiate, or walk away if the contingencies allow.
If you’re buying a business in Florida, you’ve probably heard the term due diligence, and if you’re a seller, you’re about to go through it. Either way, understanding what due diligence is, why it matters, and how to navigate it can make or break a business transaction.
What is due diligence?
Due diligence is the process by which a buyer thoroughly investigates a business before finalizing a purchase. Once a letter of intent or a purchase agreement with contingencies is signed and the buyer and seller have agreed on basic terms, the buyer gets access to the business’s confidential information and has a set period, agreed in the contract, to verify everything they were told about the business is accurate.
Think of it as the “trust but verify” phase of the transaction. The buyer is checking that the financials are accurate, the legal situation is clean, the operations are as described, and there are no hidden surprises that would change the value of the business.
What buyers look at during due diligence
A thorough due diligence review typically covers several key areas:
Financial due diligence: The buyer (and often a CPA) will review three years of tax returns, profit and loss statements, bank statements, and accounts receivable. They’re verifying that the revenue and earnings claimed in the marketing materials match what the records actually show.
Legal due diligence: This includes reviewing the business entity documents, any pending litigation, contracts with customers and vendors, intellectual property, and compliance with local, state, and federal regulations.
Operational due diligence: The buyer will want to understand how the business actually runs: your team, your processes, your supplier relationships, and what happens day-to-day. Some buyers will want to spend time in the business or speak with key employees (with the seller’s permission).
Lease and real estate review: If the business operates from a leased location, the buyer will review the lease terms, remaining term, renewal options, and whether the landlord will consent to an assignment.
Equipment and asset review: The buyer will want an accurate inventory of all equipment included in the sale, along with condition and maintenance history.
A Step-by-Step due diligence plan for buyers
Those are the areas to cover. Here is how I suggest buyers actually work through them.
1. Tie the tax returns to the books
Compare three years of federal returns line by line with the profit and loss statements you were shown, and get a written explanation for every gap. A CPA who does acquisition work can also recast the numbers, adding back owner perks and one-time costs, so you see what the business really earns for an owner. On larger deals, a quality of earnings report is the formal version of this work.
2. Trace revenue to the bank
Add up deposits from at least two years of business bank statements and compare them with reported sales. This catches revenue that appears on paper but never arrived. If the business collects Florida sales tax, compare the sales reported on its sales and use tax returns as well.
3. Search for liens, judgments, and unpaid taxes
Your attorney should search the Florida Secured Transaction Registry for UCC financing statements against the business and its equipment, and the Department of State’s Sunbiz records for judgment liens and federal lien registrations. State taxes matter too: under section 213.758 of the Florida Statutes, a buyer who acquires a business or most of its assets can be liable for the seller’s unpaid state taxes unless the seller provides a certificate of compliance from the Florida Department of Revenue or a DOR audit clears the seller.
4. Confirm the entity and every license
Check Sunbiz to confirm the seller’s company is active and the person signing can sell it. Verify trade and professional licenses through the DBPR license search at myfloridalicense.com. Watch for licenses held personally by the owner, such as a contractor license used to qualify the company, because those stay with the owner and you may need your own before closing.
5. Read every contract for assignment terms
Customer contracts, vendor agreements, equipment leases, and the real estate lease often need the other party’s consent to move to a new owner. List each one, what consent it needs, and who will ask. The lease matters most for a location-driven business; here is how lease assignment works in Florida.
6. Study the customers and the people
Ask for revenue by customer for three years and look for direction: who is growing, who is shrinking, and who left recently. Heavy reliance on a few accounts is a risk to price in, as explained in how customer concentration affects value. With the seller’s permission and late in the process, meet the key employees who hold the relationships and know-how, and learn whether they plan to stay.
7. Inspect the assets and spend time on site
Compare the condition of equipment, vehicles, and inventory with the asset list, and get an independent appraisal of major items if needed. Deferred maintenance becomes your expense the day you close. Then spend real time in the business during normal hours. Half a day watching operations often tells you more than a week of documents, and it shows you what the owner’s transition needs to cover.
What sellers need to have ready
If you’re the seller, due diligence is smoother when you’re organized from the start. Documents you should have ready include:
- Three years of business tax returns
- Monthly profit and loss statements for the past three years
- Year-to-date financials
- Current balance sheet
- Bank statements to verify deposits
- A copy of your lease and any amendments
- Equipment list and condition notes
- Employee list with roles, tenure, and compensation
- Key customer contracts or agreements
- Any licenses, permits, or certifications required to operate
What can go wrong during due diligence
Due diligence is where many deals fall apart. Common issues include financials that don’t match what was represented, unexpected legal liabilities, lease complications, key employee concerns, or environmental issues (especially in certain industries). The more transparent and organized a seller is, the less likely surprises are to derail the deal.
Buyers: don’t skip due diligence or rush through it to be nice. It’s your best protection against buying a business with hidden problems. Sellers: the best thing you can do is be honest, organized, and responsive.
Due diligence points for St. Augustine and Northeast Florida
- Seasonality. Many businesses here rise and fall with tourism. Review monthly figures for at least two full years so you see the slow months, not just the annual total.
- Historic district rules. The City of St. Augustine requires a Certificate of Appropriateness for most work in its historic preservation zoning districts, and you need it before a building permit is issued. If you plan exterior changes or a remodel, check the requirements before you commit.
- Flood zone and insurance. Look up the property on FEMA’s Flood Map Service Center and get insurance quotes before your due diligence deadline, since coverage costs near the coast can change your numbers.
For the questions to put to the seller before due diligence begins, see my 10 questions to ask when buying a business in Northeast Florida.
Frequently asked questions
What happens if I find a problem during due diligence?
You can ask the seller to fix it before closing, renegotiate the price or terms, or walk away if your agreement’s contingencies allow it. Common fixes include a price adjustment, an escrow holdback, or a seller note tied to the issue. Act before your due diligence deadline passes.
Who should be on my due diligence team?
At minimum, a CPA who does acquisition work to test the financials and a Florida attorney to handle lien searches, contracts, and the purchase agreement. Add an equipment appraiser, an insurance agent, or an industry specialist when the business calls for one. If you use an SBA loan, the lender runs its own review, but it does not replace yours.
Can I talk to employees and customers during due diligence?
Only with the seller’s permission, and usually late in the process. Sellers protect confidentiality until the deal is close, so expect to meet key employees, and sometimes a few major customers, near the end, often with the seller present.
Preparing for due diligence
Whether you’re a buyer or a seller, preparation is everything. If you’re a buyer looking at businesses in Florida, start by getting clear on what you need to verify. If you’re a seller, start cleaning up your records now, long before you go to market.
For a free consultation on buying or selling a business in Florida, or to get a quick estimate of a business’s value, use my free business valuation calculator and reach out anytime to discuss your specific situation.
Due diligence is one stage of the purchase. See where it fits in the full process of buying a business in Florida.
Disclaimer: This article is general information, not legal, tax, accounting, or financial advice. I am a licensed business broker, not an attorney or accountant. Every business and every sale is different, and laws and tax rules change, so talk with a licensed attorney and a CPA about your situation before you act on anything here. SBA loan rules also change, so verify current requirements with the U.S. Small Business Administration or an SBA lender.
