What due diligence does a $100,000 deal need?

How much diligence does $100,000 justify?

Two to three weeks of focused work, spread across five areas, is proportionate to a $100,000 transfer. That is not the six-month process a private equity firm would run on a company forty times the size, and it is far more than the afternoon some buyers give a deal of this value. The test is simple: you are about to send a sum that would take most people years to accumulate to someone you met online, in exchange for assets you cannot inspect physically. Two weeks is cheap.

Due diligence means the audit a buyer runs between agreeing terms in principle and signing, to confirm that what was described is what exists. Its purpose is to find the things that change the price or end the deal, early, while both are still possible.

What are the five areas?

The five areas are financial, customer, technical, legal and operational, and they matter roughly in that order. The table sets out what each one covers and how long it takes on a business of this size.

Run financial first. If the numbers do not hold, nothing downstream is worth your week.

What does financial diligence cover?

Financial diligence covers trailing twelve-month collected revenue, the true cost base, and the seller's discretionary earnings that fall out of the two. Confirm revenue on a live screen-share of the payment processor with date ranges you name, then cross-check payouts against bank statements. Ask for a month-by-month table of revenue, refunds, processing fees, hosting, tooling, contractors and advertising, and challenge any line that looks suspiciously round.

Then rebuild SDE yourself rather than accepting the seller's version. Add back the owner's own pay and genuine one-off spending, but do not add back a contractor you will have to keep paying. A business with $40,000 of stated profit where $8,000 of that is a support contractor the seller classifies as optional is a $32,000 business until you decide otherwise.

What does customer and technical diligence cover?

Customer diligence covers churn, cohort behaviour, concentration and acquisition, and it tells you whether the revenue you just confirmed will still be there next year. Get monthly churn for the trailing twelve months, revenue share of the largest five accounts, and the proportion of signups arriving from each channel. A business where 70% of new customers come from one search term or one integration directory carries a risk that has nothing to do with the code.

Technical diligence covers whether you can actually own this thing. Clone the repository, run it locally, deploy it to a staging environment, and read the parts the seller is quiet about. Check test coverage, dependency ages, framework end-of-life dates, secrets management, backup and restore, and how many undocumented production changes exist outside source control.

For anything non-trivial, pay an independent developer for a day to review the codebase. It costs a few hundred dollars against a six-figure purchase and it routinely finds the thing that changes your offer.

What does legal diligence cover?

Legal diligence establishes that the seller owns every asset and is permitted to transfer it to you. Ask who wrote each significant part of the codebase and whether every contractor signed an IP assignment. Check the open-source licences in the dependency tree for anything copyleft that conflicts with a commercial product. Read the customer terms for assignment clauses, and read any enterprise contract in full.

Three other checks belong here. Confirm the domain is registered to the seller or their company rather than to a former agency or a departed co-founder. Confirm there is no undisclosed co-founder, partner or ex-employee with a claim to the business. Confirm the trademark position, at least to the extent of checking that nobody else holds a registered mark on the product name.

What does operational diligence cover?

Operational diligence establishes what the seller does that is not written down anywhere. Ask for a week in the life: every recurring task, every ad hoc intervention, every support pattern, every manual process. Then ask what happened the last three times something broke, and how it was fixed.

The output you want is operating documentation you could hand to somebody else. Deployment steps, DNS and registrar details, third-party accounts with their billing owners, support macros, the monthly close routine, and a list of what fails silently. If it does not exist, ask the seller to write it during diligence and make it a condition of the purchase agreement. A business with no operating record is not unbuyable, and it is worth less than one with a record.

What do you do with what you find?

Use findings to adjust the price, adjust the agreement, or walk, and be clear with yourself about which one each finding justifies. A missing contractor IP assignment is fixable by getting the assignment signed before close, and it belongs in the agreement rather than in the price. Falling revenue over the trailing six months is a pricing issue. Revenue that cannot be confirmed on a live dashboard is a walking issue, every time.

Whatever survives diligence goes into the asset purchase agreement as representations and warranties, with an asset checklist attached. The money sits in escrow until every line of that checklist is ticked by you, not by the seller. That last sentence is the difference between a completed transfer and a long and educational year.

Related: due-diligence, how-to-verify-a-sellers-revenue, red-flags-in-a-six-figure-listing