Financial Due Diligence Checklist for PE Transactions

Everything buyers will request—and how to be prepared.

Last Updated: September 2025|14 min read

Key Takeaways

  • •Financial due diligence typically takes 4-8 weeks for mid-market transactions
  • •Organized data rooms dramatically accelerate the process and improve buyer confidence
  • •Most delays come from inability to quickly produce requested documents
  • •Prepare your data room before going to market, not during the process

PE due diligence is intensive. Buyers and their advisors will request hundreds of documents across financial, legal, operational, and commercial areas. Being prepared with organized materials accelerates the process and demonstrates the operational sophistication that commands premium valuations.

This checklist covers the core financial due diligence requirements. Use it to prepare your data room before launching a process.

Financial Statements & Records

Historical Financial Statements

Audited or reviewed annual financial statements (3 years)
Monthly financial statements (3 years, 36 months)
Year-to-date financials vs. prior year and budget
Trial balance detail for each period
Audit management letters and adjusting entries

Revenue Documentation

Revenue by customer (monthly, 3 years)
Revenue by product/service line
Revenue by geography/region
Recurring vs. non-recurring revenue split
Customer contracts (top 20 customers)
Backlog and pipeline reports
Revenue recognition policy documentation

Cost and Expense Documentation

Cost of goods sold detail by product/service
Operating expense detail by category (monthly)
Departmental P&Ls if available
Vendor contracts (significant vendors)
Purchase orders and committed spend

Balance Sheet & Working Capital

Balance Sheet Reconciliations

Bank reconciliations (all accounts, 12 months)
Accounts receivable aging (monthly, 12 months)
Bad debt reserve analysis and write-off history
Inventory reconciliation and valuation method
Inventory aging and obsolescence reserve
Prepaid expense schedule with amortization
Fixed asset schedule with depreciation
Accounts payable aging (monthly, 12 months)
Accrued expenses detail and support
Deferred revenue schedule

Working Capital Analysis

Working capital calculation (monthly, 36 months)
Seasonality analysis
DSO, DIO, DPO trends
Cash conversion cycle analysis

Debt & Obligations

Debt Documentation

Debt schedule with terms and amortization
Credit agreements and amendments
Covenant compliance history
Equipment lease agreements
Capital lease schedules
Letters of credit and guarantees

Other Obligations

Real estate leases with terms and renewal options
Pension and benefit plan obligations
Deferred compensation arrangements
Environmental liabilities or remediation
Pending or threatened litigation

Tax Documentation

Tax Records

Federal and state tax returns (3 years)
Tax provision workpapers
Deferred tax asset/liability schedule
NOL carryforward schedule
R&D credit documentation
Sales and use tax filings and nexus analysis
Tax audit history and correspondence
Transfer pricing documentation (if applicable)

Projections & Analysis

Forward-Looking Documentation

Annual budget (current year)
Financial projections (3-5 years)
Key assumptions supporting projections
Historical budget vs. actual analysis
CapEx plan and historical spend
13-week cash flow forecast

EBITDA Analysis

EBITDA bridge (reported to adjusted)
Adjustment schedule with support
Owner compensation analysis vs. market
Related party transaction summary

Due Diligence Timeline

Financial due diligence typically runs 4-8 weeks for mid-market transactions. Here's a typical timeline:

Week 1: Initial Request

Buyer's advisors issue initial document request list. Data room access granted. Seller begins populating requested materials.

Weeks 2-3: Document Review

QoE team reviews financials, identifies preliminary issues. Follow-up questions issued. Management interview scheduled.

Week 4: Management Interview

Day-long session with CFO and key finance team. Deep dive into accounting policies, adjustments, and business model. Additional diligence requests.

Weeks 5-6: Analysis & Follow-up

QoE team completes detailed analysis. Working capital peg discussions. Adjustment negotiations. Draft QoE report circulated.

Weeks 7-8: Finalization

Final QoE report issued. Purchase price adjustments finalized. Transaction documents updated to reflect diligence findings.

The Biggest Time Killer

The #1 cause of extended diligence timelines is inability to quickly produce requested documents. When buyers wait 5-7 days for simple requests, they lose confidence in management capability. Pre-populate your data room with everything on this list before launching a process.

Data Room Best Practices

  • Use professional VDR: Intralinks, Datasite, or similar—not Dropbox
  • Organize logically: Mirror standard due diligence categories
  • Name files clearly: Include dates and version numbers
  • Maintain index: Track what's uploaded and what's pending
  • Control access: Different permission levels for different parties
  • Track activity: Monitor what buyers are reviewing
  • Respond promptly: Answer questions within 24-48 hours

Data Room Activity Intelligence

VDR tracking shows which documents buyers spend time reviewing. Heavy focus on customer contracts might indicate concerns about concentration. Extensive time on working capital suggests they're modeling for peg negotiation. Use this intelligence to anticipate questions and prepare responses.

Related Resources

PE Readiness Guide

Complete preparation overview

Quality of Earnings

Understanding QoE analysis

Need Help Preparing Your Data Room?

Eagle Rock CFO helps companies organize documentation and prepare for PE due diligence. Get your financials ready before buyers start asking questions.

Schedule a Consultation