Due diligence checklist for buying a company in Spain

Every acquisition that goes wrong has one thing in common: the buyer did not know what they were actually buying. Maybe the revenue was real but the margins were not. Maybe the working capital looked fine on paper but was inflated for the sale. Maybe there was a pending tax inspection that turned into a €2 million liability six months after closing. Financial due diligence exists to find these things before you commit — not after. Here is the complete checklist.

Financial due diligence (FDD) is the independent analysis of a target company’s historical financial performance, current financial position, and the sustainability of its earnings. It goes deeper than reading the accounts — it tests whether the numbers are real, whether they are recurring, and whether they accurately represent what the business will look like after the transaction closes. For any acquisition above a few hundred thousand euros, FDD is not optional.

1. Quality of earnings (QoE) analysis

This is the centrepiece of any financial due diligence engagement. The goal is to determine what the company’s normalised, recurring EBITDA actually is — stripping out one-off items, owner-specific costs, and accounting policies that flatter the result.

• Identify and adjust for non-recurring income and expenses: restructuring costs, litigation settlements, one-off grants, asset disposals
• Identify and adjust for owner-specific items: above-market or below-market owner salaries, personal expenses run through the company, related-party transactions at non-arm’s-length prices
• Assess revenue recognition policies: are revenues recognised consistently? Is there evidence of channel stuffing or pulled-forward revenue near the sale date?
• Review gross margin trends by product, customer, or geography — look for deterioration hidden in aggregate figures
• Assess run-rate adjustments: annualise partial-year impacts of new contracts, price increases, or cost reductions that are already in place but not yet fully reflected in historical results

2. Revenue and customer analysis

• Top customer concentration: what percentage of revenue comes from the top 5 and top 10 customers? What are their contract terms and renewal histories?
• Customer churn: what is the historical customer retention rate? Has any major customer given notice or reduced volumes before the sale?
• Contract terms: are customer contracts transferable to the new owner, or do they contain change-of-control clauses that allow termination?
• Pipeline and backlog: is the reported order book real and confirmed? What is the conversion rate from pipeline to closed revenue?
• Pricing trends: have prices been held artificially stable to maintain revenue for the sale, while costs have risen?

3. Working capital analysis

Working capital is one of the most commonly manipulated areas in pre-sale preparation. A typical acquisition includes a working capital target (a ‘peg’) — if the actual working capital at closing is below the peg, the buyer receives a price adjustment. Understanding what normalised working capital looks like is therefore critical.

• Calculate the trailing 12-month average working capital by month — not just the year-end figure
• Analyse accounts receivable: age profile, any significant overdue balances, disputes, or recoverability risk
• Analyse inventory: is it correctly valued? Are there slow-moving or obsolete items that should be written down?
• Analyse accounts payable: are there unusually long payment terms that will revert to normal post-acquisition? Are any suppliers pressing for payment?
• Identify seasonality: working capital fluctuates in most businesses — the normalised peg must account for seasonal patterns

4. Debt and debt-like items

The purchase price in most acquisitions is set on a cash-free, debt-free basis — but ‘debt’ is defined more broadly than just bank loans. A thorough financial due diligence checklist must identify all debt and debt-like items:

• Bank loans, overdrafts, and credit facilities
• Finance lease liabilities (on and off balance sheet)
• Earn-out obligations from prior acquisitions
• Deferred consideration payable to former owners
• Pension deficits — particularly relevant for companies in Germany, the UK, and other countries with defined benefit schemes
• Tax liabilities: unpaid taxes, deferred tax liabilities, and any open tax inspections
• Litigation provisions: pending or threatened legal claims that may result in cash outflows
• Unfunded restructuring costs: commitments made but not yet provided for
• Environmental liabilities: contamination, remediation obligations, or regulatory compliance costs

5. Cash flow analysis

• Reconcile reported EBITDA to actual cash generated from operations — companies that report strong EBITDA but consistently consume cash are a warning sign
• Analyse capital expenditure: distinguish between maintenance capex (required to sustain the business) and growth capex (optional investments). The buyer inherits the maintenance capex obligation
• Assess free cash flow conversion — what proportion of EBITDA converts to free cash flow after working capital movements and capex?
• Review any significant capex that has been deferred — a seller who has underinvested in maintenance is transferring a future cost to the buyer

6. Tax due diligence within the FDD scope

Tax is a financial item — and a common source of post-acquisition surprises. Key areas to cover:

• Open tax years: how many years remain open for inspection under the applicable statute of limitations?
• Any ongoing tax audits or pending assessments?
• Transfer pricing: has the company documented related-party transactions correctly?
• Tax loss carryforwards: are they real, quantified, and available after the change of ownership?
• R&D tax credits: are claimed credits properly substantiated?
• VAT: any significant disputed credits, open inspections, or historic errors in VAT treatment?

7. Management accounts and reporting quality

• Are monthly management accounts available and timely? Companies that cannot produce reliable monthly accounts have a control environment problem
• Are budgets and forecasts prepared — and how has actual performance compared to budget historically?
• Has there been a change in accounting policies in the last 3 years? If so, why?
• Has there been an auditor change? If so, investigate the reason
• Are there any audit qualifications or emphasis-of-matter paragraphs in recent statutory audits?

Frequently asked questions

What is the difference between financial due diligence and an audit?

An audit provides an opinion on whether financial statements give a true and fair view under the applicable accounting standards. Financial due diligence is buyer-focused: it analyses the quality, sustainability and recoverability of earnings specifically in the context of the acquisition. FDD often identifies issues that a statutory audit does not — because the audit tests historical compliance, while FDD tests whether the business is what the seller says it is.

How long does financial due diligence take?

For a small to mid-market transaction, FDD typically takes 3–6 weeks from data room access to delivery of the report. Complex transactions, multi-entity targets, or companies with poor record-keeping can take longer. Rushing FDD to meet a seller’s preferred timeline is one of the most common and costly mistakes buyers make.

What is a normalised EBITDA and why does it matter?

Normalised EBITDA is the earnings before interest, tax, depreciation and amortisation adjusted for non-recurring items and owner-specific costs — representing what the business would earn under new, arm’s-length ownership. Most acquisitions are priced as a multiple of normalised EBITDA (e.g., 6x or 8x EBITDA). A difference of €500,000 in normalised EBITDA, at a 7x multiple, is a €3.5 million difference in purchase price — which is why the QoE analysis is so critical.

Financial due diligence is not a cost — it is protection. At Capital Auditors & Consultants, we conduct independent financial due diligence for buyers acquiring companies in Spain and across international markets, delivering clear findings that inform the price, the structure, and the negotiation. Contact our M&A advisory team before you enter exclusivity.