How Much Does Due Diligence Cost When Buying a Small Business?
Chris Barrett
Due diligence on a small business purchase usually costs $25,000 to $75,000 in professional fees, and more on larger or more complex deals. Most of that budget goes to two items: the quality of earnings (QoE) report and the legal work on the purchase agreement. The rest depends on the deal and the lender, and can include a business valuation, real estate or equipment appraisals, an environmental report, a tax review and lien searches.
This guide walks through what each piece typically costs, which ones an SBA lender will ask for, and what makes the total go up or down. We’ve included Midwest CPA’s published QoE fees and market ranges from outside sources for the work we don’t do.
What a Due Diligence Budget Usually Includes
Due diligence is the work you do between signing a letter of intent (LOI) and closing to confirm you’re buying what you think you’re buying. For most small business purchases, the budget breaks into three groups:
- Financial due diligence. A QoE report that tests the seller’s earnings, ties revenue to the bank and sets a working capital target. This is usually the largest single check you’ll write for diligence, other than legal.
- Legal due diligence. Your attorney reviews contracts, leases, licenses and liabilities, and drafts or negotiates the purchase agreement.
- Third-party reports. A business valuation, appraisals, an environmental report and searches for liens, depending on the deal and the lender.
Some buyers also pay for specialist reviews, like a tax review, an inventory count or an IT and cybersecurity review, when the business calls for it.
Typical Due Diligence Costs by Item
The table below shows typical ranges. Our QoE fees come from our published pricing. The other ranges come from the outside sources listed at the end of this article, and actual quotes will vary by provider, deal size and location.
| Diligence item | Typical cost | When you need it |
|---|---|---|
| Quality of earnings (QoE) report, Midwest CPA | About $15,000 for deals under $5 million; $18,000 to $25,000 for $5 million to $15 million deals or when an SBA lender requires the QoE; starting at $25,000 for deals over $15 million | Almost every acquisition; required by the SBA on 7(a) acquisitions of $3 million or more |
| Legal work | $5,000 to $15,000 under $1 million; $15,000 to $50,000 for $1 million to $5 million; $40,000 to $100,000 or more for $5 million to $25 million | Every deal |
| Business valuation for an SBA loan | $3,000 to $7,500 | Most SBA acquisition loans |
| Commercial real estate appraisal | $3,000 to $8,000 or more | When real estate is part of the deal or the collateral |
| Machinery and equipment appraisal | $2,000 to $5,000 | Asset-heavy businesses |
| Phase I environmental site assessment | Often $2,000 to $3,500 | When commercial property is involved and the lender or the property’s history calls for it |
| Tax review | $3,000 to $10,000 | Stock purchases and businesses that operate in several states |
| Inventory verification | $5,000 to $15,000 | Businesses with significant inventory |
| IT and cybersecurity review | $5,000 to $25,000 | Software, tech-enabled or data-sensitive businesses |
| Lien and UCC searches | A few hundred dollars per search | Most deals |
A buyer of a straightforward service business with one location may only need the QoE, legal work and a valuation. A buyer of a manufacturer that owns its building may need nearly everything on the list.
What the SBA Requires on Acquisition Loans
If you’re financing the purchase with an SBA 7(a) loan, some of these items stop being optional. Under the SBA’s current SOP for 7(a) changes of ownership:
- QoE report. Required when the purchase price is $3 million or more, and it must include a proof of cash. We cover the details in our article on the SBA quality of earnings requirement.
- Business valuation. The lender must get an independent valuation from a qualified source on most change of ownership loans. On smaller deals, the lender can sometimes do its own valuation instead.
- Environmental review. Required for commercial property taken as collateral. A Phase I is needed for certain higher-risk industries, and other properties may only need a questionnaire and a records search.
Your lender may ask for more than the SBA minimum, so ask early what they’ll need. Many lenders want a QoE on deals well below $3 million.
What Makes Due Diligence Cost More or Less
Deal size matters, but complexity usually matters more. The same factors that raise one provider’s fee tend to raise everyone’s:
- Messy or cash-basis books. If the seller’s books don’t tie to the bank or the tax returns, someone has to rebuild the numbers, and that takes time.
- Multiple entities or locations. Each one adds records to test, contracts to review and sometimes property to inspect.
- Inventory or job costing. These need extra testing to confirm margins and the value of what’s on the shelf.
- A long list of add-backs. Every adjustment to earnings needs support, so a long list means more work.
- Real estate. Owned property brings appraisals, environmental work, title work and surveys.
- Lender requirements. An SBA or bank loan usually adds deliverables and a few extra reports.
- A tight deadline. Rush timing usually costs extra, and it leaves less room to follow up on issues.
The biggest thing that keeps costs down is a seller who responds quickly and has clean, accrual-basis books with regular monthly closes. We go into how each of these affects a QoE fee below.
Why QoE Quotes Vary
A QoE is a consulting engagement, not an audit, so there’s no required scope and quotes can vary widely for what sounds like the same report. When you compare quotes, compare what’s included. We cover what drives the fee in what factors influence the cost of a quality of earnings report, and our guide to what a quality of earnings report is explains the report itself.
How to Budget for Due Diligence
A few practical steps help keep diligence costs in line with the risk you’re taking on:
- Get fixed-fee quotes in writing. Hourly billing makes the total hard to predict. Our QoEs are fixed fee, and you get the scope and price in writing before we start.
- Talk to your lender before you sign the LOI. Knowing which reports they need lets you build them into your budget and timeline from the start.
- Start financial work right after the LOI. Most of our QoEs take 2 to 4 weeks once the seller sends the data, and we suggest budgeting about 4 weeks. Starting early avoids paying for rush timing later.
- Spend where the risk is. Order specialist reviews when the business calls for them, like an inventory count for a distributor or an IT review for a software company, rather than ordering every report on a generic list.
- Use a checklist. Our due diligence checklist lists the documents to request from the seller, which saves time for everyone working on the deal.
Frequently Asked Questions
What is the most expensive part of due diligence?
On most small business purchases, legal work and the QoE are the two largest costs. On deals with real estate or heavy equipment, appraisals and environmental work can add up as well.
Who pays for due diligence, the buyer or the seller?
The buyer usually pays for their own due diligence. The seller pays for their own advisors, and some sellers pay for a sell-side QoE before going to market so buyers can review it.
Can I include due diligence costs in my SBA loan?
Often, yes. Most lenders let you include your QoE and legal fees in your total project costs, and the SBA allows certain out-of-pocket expenses, including business valuations and QoE reports, to be included on change of ownership loans. It’s your lender’s call, so ask them early.
What happens if I walk away from the deal?
Most diligence fees are spent once the work starts, which is why it helps to find problems early. At Midwest CPA, we bill half of the QoE fee up front and half when the report is done. Most of the reconciling happens in the first phase, which is where a deal-killing red flag usually shows up. If the deal dies during that first phase, the second half isn’t due.
How long does due diligence take?
Diligence on many small business deals takes 30 to 60 days after the LOI is signed, and complex deals can take longer. A QoE usually takes 2 to 4 weeks once the seller provides the data, and legal work and lender approval often run alongside it.
Planning Your Diligence Budget
A realistic diligence budget is part of the cost of buying a business, the same as closing costs or working capital. Plan for the QoE and legal work first, confirm with your lender what else they’ll require, and add specialist reviews where the business carries real risk. You can see our current QoE fees on our pricing page.
If you’re under LOI or getting close, we’d be glad to talk through your deal and give you a fixed-fee quote.
Sources
- U.S. Small Business Administration: SOP 50 10 8.1, Lender and Development Company Loan Programs (7(a) changes of ownership, business valuation and environmental requirements)
- Clearly Acquired: Transaction Cost Budget for SMB Acquisitions (September 2026)
- Fehr Graham: Phase I Environmental Site Assessment (ESA) Costs
Related Resources
Disclaimer
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.