Financial due diligence is the most critical component of business acquisition analysis. It verifies that the cash flows and earnings the seller represented are real, consistent, and sustainable. This checklist covers the core financial documents every Illinois buyer should review before closing.
Core Financial Documents
Request and review: three years of signed federal business tax returns (Form 1120, 1120S, 1065, or Schedule C depending on entity type), three years of signed personal tax returns (to verify owner compensation and pass-through income), three years of detailed P&L statements (ideally monthly), three years of balance sheets, year-to-date P&L and balance sheet, three months of recent business bank statements for all accounts, and payroll reports for the same three years.
Revenue Verification
Cross-reference P&L revenues against bank deposits. For cash-intensive businesses, reconcile POS reports or daily sales records against deposits. Compare sales tax returns to reported revenues as an independent check. Review accounts receivable aging and identify any significantly overdue receivables that may not be collectible. For service businesses, verify contract revenue by reviewing the underlying contracts.
Identify and document all SDE add-backs — personal expenses, owner compensation, non-recurring items — with specific supporting documentation for each. Add-backs that cannot be supported with documentation should be excluded from the SDE calculation. A properly documented SDE recast that survives scrutiny is worth far more to both parties than an aggressive recast that buyers and lenders will challenge.