Buying a running business can compress five years of struggle into one transaction — customers, staff, licences and cash flow from day one. It can also compress five years of someone else's mistakes into your first month. The difference is due diligence: the disciplined verification of everything the seller claims. Here is a practical checklist for buying a small business in India, and how to structure the deal so surprises remain the seller's problem.
Financial diligence: trust the bank, not the register
- Three years of financials, matched against bank statements — revenue that never touched a bank account should be heavily discounted
- GST returns (GSTR-1, 3B) reconciled with claimed turnover; ITR acknowledgements for the same years
- Month-wise sales for seasonality; customer concentration (top five customers' share)
- Receivables ageing — how much is genuinely collectible; payables and any disputed dues
- Normalised profit: adjust owner's salary, family payroll, personal expenses, one-offs
Insist on raw data — bank statements, GST portal downloads — rather than summaries. A seller who resists data-level verification is answering your question.
Legal and ownership diligence
- Clear title to what you are buying: assets list, invoices for major equipment, no hypothecation you don't know about (check charges with the bank and, for companies, on MCA)
- Premises: lease validity, remaining term, assignment/transfer rights, landlord consent — a great business on a 6-month lease is a lease negotiation, not a purchase
- Litigation search: pending cases, labour disputes, consumer complaints, cheque-bounce matters
- Contracts that matter: supplier agreements, franchise/dealership letters, customer contracts — and whether they survive a change of ownership
- Employees: statutory dues status (PF, ESI, gratuity accrued) — in a business transfer, accrued liabilities tend to follow the undertaking
Licences and tax traps
List every licence the business runs on — FSSAI, trade licence, drug licence, pollution consents, factory licence, excise — and verify validity and transferability. Many licences are person- or entity-specific and must be freshly obtained by the buyer; the timeline for that becomes your transition risk. On tax: check for GST demands, unclaimed ITC that won't transfer, and pending assessments. In an asset purchase you generally leave the seller's tax history behind; in a share purchase (buying a company) you inherit every skeleton — diligence accordingly, and take indemnities in writing.
Buying assets (equipment, stock, brand, goodwill) gives you a clean start but needs fresh licences. Buying shares of the company keeps licences and contracts intact but imports all hidden liabilities. Small deals in India usually favour asset purchases with a handover period.
Operational diligence: sit in the shop
Spend a week inside before signing. Watch actual footfall and billing against claimed numbers. Meet the two or three employees the business really runs on — will they stay? Call the top suppliers and customers (with consent, or discreetly as a customer). Understand why the seller is really selling; "health reasons" sometimes means a new competitor or an expiring lease. Verify the business's ratings, reviews and pending customer commitments — advance orders, warranties, memberships you will have to honour.
Structuring the purchase safely
Anchor price to verified normalised earnings, not the asking multiple. Hold back 15–30% of consideration for 6–12 months against undisclosed liabilities, paid via escrow or post-dated instalments. Take specific indemnities for tax, statutory dues and litigation. Include a non-compete with the seller (reasonable in scope and time), a handover period with defined hours, and written assignment of the brand name, phone numbers, social accounts and supplier relationships — the intangibles that are the actual business.
How Aidwish helps
Aidwish runs buy-side diligence for small acquisitions — financial verification, licence transferability mapping, agreement structuring with holdbacks and indemnities — and manages fresh registrations so the handover doesn't stall the business you just bought.