Retail Store Due Diligence Checklist for Buyers
By the time a buyer signs a letter of intent, they have usually walked the sales floor, reviewed a summary of sales and talked with the seller about the store’s history. Retail store due diligence is where those impressions are tested against records, agreements, inventory data and conversations with the landlord and key vendors. It is also when the buyer’s lender gathers much of what it needs to evaluate the loan.
This checklist is general guidance for buyers of existing, operating specialty retail stores. It is not exhaustive, and every transaction is different. Lease, employment, sales tax and consumer data rules vary by state, so buyers should rely on qualified attorneys and accountants. Nothing here is legal, tax or financial advice.
Financial Records
- Several years of business tax returns and financial statements
- Point-of-sale sales reports reconciled to bank deposits and tax returns
- Sales by month, by category and by channel, including any online sales
- Sales tax filings and any notices from taxing authorities
- Documentation supporting proposed add-backs
- A schedule of all debt, leases and liens
Inventory
- Inventory reports by category, vendor and age
- Markdown and shrink history
- Consignment, memo or vendor-owned goods that should be excluded from the purchase
- Open purchase orders and seasonal commitments already placed with vendors
See our article on retail inventory at closing.
The Lease and Premises
- The full lease with all amendments, options and guaranties
- Assignment, co-tenancy, use, exclusivity and percentage rent provisions
- Common area charges and reconciliations
- Condition of the building, signage, storefront and systems
Our article on the retail store lease explains these provisions.
Vendors and Brands
- Written dealer, distribution or exclusive brand agreements
- Vendor credit terms, payment history and any balances owed
- Co-op advertising, rebate or promotional programs
- Whether each vendor must approve a new owner
Vendor relationships should not be assumed to transfer. See our article on retail vendor agreements.
Customers, Loyalty and the Online Channel
- Customer lists, email lists and loyalty program records, and how the data was collected
- Outstanding gift cards, store credits, layaways and special orders
- Ownership of the website, domain, social media accounts and online store settings
- Privacy policies and consumer-facing terms, to be reviewed by counsel
See our article on retail customer data and the online channel.
Staff
- Roles, tenure, pay structure and any commission arrangements
- Key employees who handle buying, visual merchandising or major customer relationships
- Employment policies and any pending claims, reviewed with qualified counsel
Our guide to retail store employee retention explains how to plan for the transition.
Legal and Insurance
- Business registrations, local permits and resale certificates, which should not be assumed to transfer
- Pending or threatened claims
- Insurance policies and loss history
Conversations Worth Having
Records tell only part of the story. With the seller’s permission and under confidentiality, buyers frequently speak with the landlord about assignment, with key vendors about approval of a new owner and with the store manager about daily operations. These conversations can reveal issues that do not appear in documents, such as a vendor planning to change terms or a landlord with plans for the property.
What the Lender Will Request
Lenders typically ask for the seller’s tax returns and financial statements, the purchase agreement, inventory information, the lease or a lease commitment and details on the buyer’s experience and equity. Organizing due diligence materials with lender requests in mind can help the process move more smoothly.
US Professional Funding helps buyers finance the acquisition of existing, operating retail stores and can help coordinate what lenders need during due diligence. Learn more about our retail business acquisition financing.
