What is the ‘Due Diligence Period’ and What am I Looking for?

Due Diligence Period

The due diligence period is a critical phase in the process of buying a business in Florida. It's the buyer's opportunity to verify the information presented by the seller and to thoroughly understand the operational, financial, and legal aspects of the business. Conducting proper due diligence can be the difference between a great deal and a devastating decision. Here are some steps and considerations for conducting effective due diligence.

Legal Structure and Compliance

  1. Examine the Business Structure:
    • Understand whether you're buying an LLC, corporation, partnership, or sole proprietorship. Each has different implications for liability and tax.
    • Reference: Florida Statutes, Chapter 607 (Corporations) and Chapter 605 (LLCs) provide the legal frameworks for these entities.
  2. Review Licenses and Permits:
  3. Compliance with Employment Laws:
    • Ensure the business's employment practices comply with both federal and Florida employment laws, including wage regulations and work conditions.
    • Reference: The Florida Civil Rights Act (Chapter 760, Florida Statutes, specifically, Section 760.10) and the Fair Labor Standards Act for federal guidelines.

Financial Health

  1. Audit Financial Statements:
    • Review the last 3-5 years of financial statements, including balance sheets, income statements, cash flow statements, and tax returns. Consider hiring a forensic accountant for a thorough analysis.
    • Example: Look for consistent revenue growth, profitability, and healthy cash flow as indicators of financial stability.
  2. Analyze Customer and Revenue Concentration:
    • Evaluate if the business relies heavily on a limited number of customers for a significant portion of its revenue, which can pose a risk.
    • Practical Step: Request a breakdown of revenue by customer and assess any customer contracts for stability and duration.
  3. Assess Outstanding Debts and Liabilities:
    • Identify all secured and unsecured liabilities, including loans, leases, and contractual obligations.
    • UCC searches in Florida can reveal secured transactions and encumbrances on the business.

Operational Viability

  1. Review Business Operations:
    • Understand the day-to-day operations, supplier and distributor relationships, and the condition of physical assets.
    • Practical Step: Tour the business premises, review asset maintenance records, and meet with key management personnel.
  2. Employee and Management Evaluation:
    • Assess the quality and stability of the workforce, including management structures. Consider the potential impact of the business sale on staff retention.
    • Look into employment agreements for any terms that might affect the transition, such as non-compete clauses.
  3. Market Position and Competition Analysis:
    • Evaluate the business's market position, its competitors, and the overall health of the industry.
    • Example: Use market research reports and industry analysis to gauge future growth potential and competitive threats.

Legal and Environmental Issues

  1. Legal Disputes and Litigation History:
    • Investigate any past or ongoing legal disputes, litigation, or regulatory actions against the business.
    • Practical Step: Review court records and consult with a Florida business attorney to understand the potential impact of these issues.
  2. Environmental Assessments:
    • Conduct an environmental assessment of the business premises to identify potential liabilities, such as contamination or non-compliance with environmental regulations.
    • Reference: The Florida Department of Environmental Protection (DEP) can provide guidance and records on environmental compliance.

Intellectual Property and Contracts

  1. Intellectual Property Review:
    • Verify the ownership and status of any patents, trademarks, copyrights, and trade secrets associated with the business.
    • Practical Step: Conduct searches with the U.S. Patent and Trademark Office and review any IP-related litigation or disputes.
  2. Examine Contracts and Agreements:
    • Review all material contracts, including leases, supplier agreements, customer contracts, and loan agreements, for terms, conditions, and any potential liabilities.
    • Example: Look for clauses that may trigger obligations or terminations upon the sale of the business.


Conducting thorough due diligence when buying a business in Florida is indispensable. It not only helps in assessing the value of the business but also in identifying any potential risks or liabilities that could impact the investment. Engaging with legal and financial professionals experienced in Florida business transactions is crucial to navigate this complex process effectively. If you have questions about conducting due diligence, contact the Business attorneys at MSD-Business for a free consultation.

About the Author:

A person in a suit and tie

Description automatically generated Chase Carpenter is a partner in the Business Division of Law Offices of Moffa, Sutton, & Donnini, P.A. His practice revolves around business transactions and business litigation. Mr. Carpenter handles a wide range of cases including contract drafting, partnership disputes, commercial leases, and construction litigation. These cases encompass diverse industries, including healthcare, technology, real estate investment, and government contracting.

About the Firm:

The Law Offices of Moffa, Sutton, & Donnini, P.A., also known as MSD Business, is a local business law firm in Tampa, FL, serving clients throughout Fort Lauderdale and statewide. Our firm has a long history of helping clients navigate all types of complex legal matters, including local and state tax issues. In our business law practice, we assist clients with everything from mergers and acquisitions to contract disputes, business litigation, general counsel, and more.