Due Diligence Questions: 100+ Critical Questions Every Deal Team Must Ask

💰 Financial Due Diligence Questions (20)

Validate revenue quality, cost structure, working capital, and hidden liabilities. These questions surface the gap between reported and real financial health.

1. 1What are the top 5 customers as a percentage of total revenue, and what are their contract terms?Deal-KillerCustomer concentration above 30% in top 5 accounts is the #1 revenue risk factor. A single non-renewal can collapse EBITDA projections.
2. 2What is the monthly/quarterly revenue trend over the past 24 months?High PriorityDeclining or plateauing revenue masked by one-time deals is a classic value trap. Look for organic vs. acquired growth.
3. 3What is the gross margin trend and what drives changes?High PriorityMargin compression signals pricing pressure, rising input costs, or competitive threats.
4. 4Are there any off-balance-sheet liabilities, contingent obligations, or unfunded commitments?Deal-KillerOperating leases, unfunded pensions, guarantees, and earnouts can add millions in hidden obligations.
5. 5What is the working capital cycle and are there seasonal patterns?WatchWorking capital pegs directly impact the purchase price adjustment at close.
6. 6What is the true EBITDA after normalizing one-time expenses?High PrioritySeller add-backs often inflate EBITDA by 10-25%.
7. 7What is the debt structure and are there change-of-control triggers?Deal-KillerAcceleration clauses can force refinancing at worse terms or block the deal.
8. 8What capital expenditures are required to maintain current revenue?High PriorityDeferred capex means future cash drain.
9. 9What is the cash conversion cycle vs. industry benchmarks?WatchSlow collections or aggressive payables manipulation signals working capital stress.
10. 10Are there related-party transactions that aren't at arm's length?Deal-KillerOwner salaries, rent to affiliated entities, and intercompany pricing distort true profitability.
11. 11What is the revenue recognition policy and has it changed?High PriorityASC 606 changes or upfront recognition shifts can artificially inflate revenue.
12. 12What is the AR aging and bad debt history?WatchDeteriorating AR aging signals collection problems or customer distress.
13. 13What tax positions could be challenged?High PriorityAggressive transfer pricing or R&D credits create post-closing tax liability.
14. 14Are there earnout obligations from prior acquisitions?WatchContingent earnouts create future cash obligations.
15. 15What insurance coverage exists and are claims pending?WatchD&O, E&O, and cyber insurance gaps transfer risk to the buyer.
16. 16What is the deferred revenue balance?High PriorityHigh deferred revenue is a liability, not an asset.
17. 17What stock-based compensation is excluded from adjusted EBITDA?High PrioritySBC is a real economic cost. Excluding it overstates cash earnings.
18. 18What is the historical free cash flow conversion rate?High PriorityHigh EBITDA with low FCF reveals hidden capital intensity.
19. 19Do tax credits or NOLs expire on change of control?Deal-KillerSection 382 limitations can wipe out NOL carryforwards post-acquisition.
20. 20What is the quality of earnings — audited vs. reviewed vs. compiled?Deal-KillerReviewed or compiled financials have 3-5x higher rates of material misstatement.

⚖️ Legal & Regulatory Questions (18)

Identify litigation exposure, regulatory risk, IP chain of title, and contract obligations that survive closing.

1. 21What pending, threatened, or settled litigation exists?Deal-KillerUndisclosed litigation is the most common cause of post-close legal disputes.
2. 22Are there regulatory investigations, consent decrees, or compliance orders?Deal-KillerActive SEC, FTC, DOJ, or industry regulator investigations can halt the deal.
3. 23What is the ownership chain for all intellectual property?Deal-KillerIP assigned without proper assignment creates chain-of-title defects.
4. 24Are key employee non-competes enforceable in this jurisdiction?High PriorityNon-competes are unenforceable in California and several other states.
5. 25What material contracts have change-of-control clauses?Deal-KillerCustomer/supplier contracts with CoC triggers can terminate on acquisition.
6. 26Are there environmental liabilities or contamination issues?High PriorityCERCLA imposes strict, retroactive liability on property owners.
7. 27What data privacy compliance gaps exist (GDPR, CCPA, HIPAA)?High PriorityNon-compliance creates fines up to 4% of global revenue under GDPR.
8. 28Are there anti-corruption / FCPA compliance concerns?High PriorityOperations in high-risk jurisdictions create successor liability for past violations.
9. 29What are the terms of existing earnout structures?WatchEarnouts create post-closing disputes over performance measurement.
10. 30What insurance policies exist and what is the claims history?WatchCoverage gaps transfer uninsured risk to the buyer.
11. 31Are there open government investigations or FOIA requests?WatchFOIA requests may expose proprietary information or signal whistleblower activity.
12. 32What is the status of all licenses, permits, and regulatory approvals?High PriorityExpired or non-transferable licenses can halt operations post-close.
13. 33Are there union negotiations or labor disputes pending?High PriorityActive labor disputes create operational disruption and reputational damage.
14. 34What warranties, indemnities, or product liability claims are outstanding?WatchProduct liability tail can extend for years.
15. 35Are there open IP disputes (patent, trademark, copyright)?High PriorityIP litigation costs $3-10M per case and can result in injunctions.
16. 36What are founder/management lock-up or vesting arrangements?WatchAccelerated vesting on change-of-control triggers large cash payouts.
17. 37Are there export control or sanctions issues (EAR, ITAR, OFAC)?Deal-KillerExport control violations carry criminal liability and bar government contracts.
18. 38What RWI terms are available and what are the exclusions?WatchRWI exclusions determine residual risk for the buyer.

📊 Commercial & Market Questions (16)

Assess revenue durability, competitive position, customer relationships, and market dynamics.

1. 39What is customer churn rate (logo and revenue) by cohort?Deal-KillerNet revenue retention below 100% means the business shrinks without new sales.
2. 40What is the average contract length, renewal rate, and price uplift?High PriorityShort contracts with no pricing power compress lifetime value.
3. 41Who are the top 3 competitors and what is your win rate?High PriorityWin rates below 30% suggest product-market fit issues.
4. 42What is CAC and LTV by channel?High PriorityLTV:CAC ratios below 3:1 indicate unsustainable growth economics.
5. 43What is the sales cycle length and trend?WatchLengthening sales cycles signal increased competition or commoditization.
6. 44What percentage of revenue is recurring vs. one-time?High PriorityLow recurring revenue means higher volatility and lower multiples.
7. 45What is the pricing strategy and when was the last price increase?WatchInability to raise prices signals weak differentiation.
8. 46What is the pipeline coverage ratio for next 2 quarters?High PriorityCoverage below 3x suggests revenue forecasts are at risk.
9. 47How dependent is revenue on a single platform or distribution partner?Deal-KillerPlatform dependency creates concentration risk the seller won't disclose.
10. 48What is the market share and growth rate?High PriorityHigh share in a shrinking market is worth less than low share in a growing one.
11. 49What is the Net Promoter Score trend?WatchDeclining NPS predicts future churn before it shows in financials.
12. 50Are there exclusive supplier or distributor agreements?WatchExclusivity may prevent buyer integration.
13. 51What is the backlog and how much is contracted vs. forecasted?High PriorityBacklog provides visibility only if contracts are firm.
14. 52What is the win/loss analysis for the last 20 deals?WatchLoss patterns reveal product gaps and competitive threats.
15. 53What is the average deal size trend?WatchDeclining deal sizes suggest commoditization or down-market shift.
16. 54What regulatory risk threatens the core market?High PriorityRegulatory shifts can eliminate entire revenue streams.

⚙️ Operational Questions (16)

Evaluate the systems, people, and processes that must survive the transaction.

1. 55Who are the top 5 key personnel and what is their retention risk?Deal-KillerIf 3+ key people leave within 12 months, deal value can decline 20-50%.
2. 56What ERP, CRM, and core systems are in place?High PriorityLegacy systems require costly migration or integration.
3. 57What is the employee headcount by function and attrition rate?High PriorityAttrition above 20% annually signals cultural or management issues.
4. 58Where are the single points of failure in the org chart?High PriorityProcesses depending on one person create massive integration risk.
5. 59Are there single-source supply chain dependencies?Deal-KillerSingle-source suppliers create continuity risk.
6. 60What is the current capacity utilization and scaling plan?WatchNear-capacity operations require immediate capex.
7. 61What are the top 3 operational risks identified by management?WatchCompare with diligence team findings to reveal blind spots.
8. 62What is the quality system maturity (ISO, Six Sigma)?WatchLack of formal quality systems increases defect rates.
9. 63What is the disaster recovery and business continuity plan?High PriorityNo DR/BCP means a single outage can halt revenue.
10. 64What are facility lease terms and are they transferable?WatchNon-transferable leases require renegotiation post-close.
11. 65What is the inventory turnover and obsolete stock reserve?High PriorityObsolete stock is often overvalued on the balance sheet.
12. 66What are the top 3 operational KPIs and how are they trending?WatchOperational metrics reveal efficiency financials don't show.
13. 67What is the cybersecurity posture?Deal-KillerUndisclosed breaches or lack of MFA create immediate liability.
14. 68What outsourced functions exist and at what service levels?WatchOutsourced functions add complexity and may have CoC triggers.
15. 69What is the real estate footprint and is it optimized?WatchExcess real estate is a hidden liability.
16. 70What is the safety record (OSHA incidents, lost-time injuries)?High PriorityPoor safety records signal operational discipline issues.

💻 Technology & IP Questions (15)

Assess technical debt, IP portfolio, data assets, and stack scalability.

1. 71What is the architecture — cloud-native, hybrid, or on-premise?High PriorityLegacy on-premise architecture increases integration costs 2-5x.
2. 72What is the technical debt assessment and remediation cost?High PriorityTechnical debt can add $500K-$5M in post-close costs.
3. 73What is the IP portfolio and its enforceability?High PriorityExpiring patents or unrenewed trademarks reduce competitive moats.
4. 74What open-source software is used and are there copyleft risks?Deal-KillerGPL/AGPL code can force source code disclosure — a catastrophic IP risk.
5. 75What is the data architecture and who owns the data assets?High PriorityThird-party data licenses may not transfer on change-of-control.
6. 76What is the SDLC and deployment frequency?WatchLow deployment frequency signals waterfall processes.
7. 77What is the test coverage and automation maturity?WatchLow test coverage means regression risk.
8. 78What is the tech stack and are any components end-of-life?High PriorityEOL technologies require immediate migration.
9. 79What is the cloud spend and is it optimized?WatchUnoptimized cloud spend can be reduced 20-40%.
10. 80Are there AI/ML models in production and what is model governance?High PriorityUngoverned AI creates regulatory and legal risks.
11. 81What APIs exist and what is the integration approach?WatchPoorly documented APIs make integration expensive.
12. 82What is the security architecture (zero trust, segmentation, MFA)?High PriorityFlat networks mean a single breach compromises everything.
13. 83What is the uptime/SLA track record?High PriorityUptime below 99.9% signals architecture issues.
14. 84What third-party integrations and dependencies exist?WatchEach integration is a potential failure point.
15. 85What are the DORA metrics (lead time, deployment freq, MTTR)?WatchPoor DORA metrics signal process dysfunction.

🌱 ESG & Compliance Questions (15)

Environmental, social, and governance factors increasingly drive valuation and regulatory exposure.

1. 86What is the carbon footprint and are there disclosure requirements?High PrioritySEC climate rules and EU CSRD create new compliance costs.
2. 87Are there environmental remediation obligations or contaminated sites?Deal-KillerCERCLA strict liability means buyers inherit cleanup costs they didn't cause.
3. 88What is the diversity profile and are there discrimination claims?WatchPending EEOC claims create legal liability.
4. 89What is the board composition and governance structure?WatchFounder-dominated boards with no independent directors signal governance risk.
5. 90Are there whistleblower complaints or retaliation claims?High PriorityMultiple complaints often precede enforcement actions.
6. 91What are the supplier diversity and labor practices?WatchForced labor in supply chains (UFLPA) can result in import bans.
7. 92What community and stakeholder relationships exist?WatchPoor community relations can delay permits and expansions.
8. 93What is the waste management and recycling program?WatchHazardous waste mishandling creates EPA liability.
9. 94Are there water usage or rights issues?WatchWater-intensive operations face increasing regulatory limits.
10. 95What is the health and safety incident rate vs. benchmarks?High PriorityTRIR above average signals management discipline problems.
11. 96Are there animal welfare or testing compliance issues?WatchNon-compliance can halt R&D in biotech targets.
12. 97What is the political lobbying and campaign contribution exposure?WatchLobbying activities can create reputational issues.
13. 98What sustainability reporting frameworks are used?WatchNo sustainability reporting signals ESG immaturity.
14. 99Are there product safety or consumer protection gaps?High PriorityCPSC recalls or FDA warning letters create ongoing obligations.
15. 100What is the anti-bribery and corruption compliance maturity?High PriorityWeak ABC controls create successor criminal liability.

📋 How to Use These Questions

These 100+ questions form a structured Due Diligence Questionnaire. Here's the most effective approach:

The 80/20 Rule

The 24 deal-killer questions (tagged red) should be answered first. If any surface critical issues, the deal may need re-pricing or termination — before investing in deeper diligence.

Sequencing

proprietary-algorithm Diligence

Frequently Asked Questions