Buying an existing business is, in almost every case, a lower-risk path to ownership than starting one from scratch — you inherit revenue, customers, and often a trained team on day one. But that advantage only holds if you verify what you're actually buying. Due diligence is the process that turns a seller's story into a set of facts you can rely on. This guide covers what a thorough Michigan acquisition review should include.
Start with the financials — and go beyond the headline number
Every deal begins with an asking price tied to some multiple of earnings. Your first job is not to accept that multiple, but to verify the earnings underneath it. Request at least three years of financial statements, ideally accountant-prepared rather than owner-assembled, and reconcile them against tax returns — a gap between the two deserves an explanation, not an excuse. Pay close attention to seller add-backs: legitimate ones (the owner's salary, one-time expenses) are normal, but add-backs that feel like wishful thinking are a warning sign.
Look also at trends, not just totals. A business with flat or declining revenue over three years is a different acquisition than one growing steadily, even if this year's number looks identical.
Understand what you're actually buying: assets or the entity
Most small business acquisitions in Michigan are structured as asset purchases, meaning you buy the equipment, inventory, customer relationships, and goodwill — not the legal entity itself, which usually protects you from most historical liabilities. Some deals, particularly larger ones or those involving contracts that can't easily transfer, are structured as stock or entity purchases instead, which carries more inherited risk and needs sharper legal review. Know which structure you're in before you get attached to a price.
Customer and revenue concentration
Ask what percentage of revenue comes from the largest customer, and the top five combined. A business where one customer represents 40% of revenue is a fundamentally riskier purchase than one with the same revenue spread across a hundred accounts — that customer leaving after closing is now your problem, not the seller's. The same logic applies to supplier concentration and to any single employee whose departure would meaningfully disrupt operations.
Contracts, leases, and licenses
Verify that key contracts — customer agreements, vendor terms, the facility lease — are actually transferable to a new owner, and on what terms. A lease with only eighteen months remaining and no renewal option changes the economics of the deal. If the business depends on a professional or trade license held personally by the seller, confirm what's required for you to obtain your own, and how long that takes, before you assume day-one continuity.
Equipment, inventory, and real property
Walk the facility. Confirm equipment listed as an asset actually exists, is in the condition represented, and isn't near the end of its useful life without a replacement plan. For inventory-heavy businesses, agree on a physical count method and cutoff date near closing rather than relying on a static number from months earlier.
Legal and liability exposure
Ask directly about pending or past litigation, unresolved employee disputes, environmental issues (particularly relevant for manufacturing and industrial properties), and any liens against the business. Your attorney should run lien and litigation searches independently rather than relying solely on seller disclosure.
Working with a broker as a buyer
A broker representing the seller still has value to you as a buyer: they've typically already screened out unrealistic sellers and organized the information you need, which shortens your own diligence timeline. Independent representation — your own advisor or attorney working on your behalf — matters most once you're past the introduction stage and into verifying the numbers and negotiating structure.
Financing your acquisition
Most Michigan lower middle-market acquisitions involve some combination of buyer equity, seller financing (the seller carrying a note for part of the price), and SBA or conventional bank financing. Lenders will run their own diligence in parallel with yours, and their requirements — particularly around collateral and the seller's continued involvement post-closing — often shape the final deal structure as much as negotiation does.
The bottom line
Due diligence is not about finding a reason to walk away from every deal — most issues uncovered are manageable once known, and can be reflected in price, structure, or contingencies rather than a dealbreaker. The risk is skipping the process entirely because a business "feels right." A structured review, run alongside an experienced advisor and attorney, is what separates a good acquisition from an expensive lesson.