The DTC Brand Due Diligence Checklist: 14 Things to Verify Before You Wire Money
Most buyers focus on headline revenue. The ones who get burned only focused on headline revenue. Here are the 14 areas every serious acquirer must verify before closing a DTC deal.
The teaser deck looks great. Revenue is up. The founder seems trustworthy. And then, six months after closing, you discover that 40% of that revenue came from a single wholesale account that didn't transfer. Due diligence isn't bureaucratic box-checking — it's the only thing standing between you and a catastrophic mistake.
Financial Verification
- Verify revenue through the platform API. Connect directly to Shopify, WooCommerce, or whatever platform the brand uses. Pull 24–36 months of order data. Cross-reference against Stripe or PayPal statements. Look for any discrepancy between reported and actual figures.
- Separate gross revenue from net revenue. Refunds, chargebacks, and promotional discounts can account for 10–20% of gross figures. Always work from net. Ask for the refund rate by SKU.
- Request the P&L at SKU level. Blended margins hide problem products. One SKU with negative contribution margin can mask healthy performance elsewhere and become a landmine post-acquisition.
- Review ad spend as a percentage of revenue for each channel, trended monthly. A deteriorating ROAS over 12 months tells you more about the brand's future than any trailing revenue figure.
Customer Metrics
- Repeat purchase rate. What percentage of customers have placed two or more orders? Anything below 20% in a consumable category is a red flag. Above 35% is genuinely defensible.
- Customer concentration. Ask for the revenue split across the top 10, top 50, and top 100 customers. If the top 10 represent more than 25% of revenue, you have a concentration problem.
- Cohort retention. How do cohorts acquired 12, 18, and 24 months ago behave today? A brand with declining cohort retention is showing you the real health of the business, regardless of top-line growth.
Operations and Supply Chain
- Supplier agreements. Are there written contracts with key suppliers? What are the lead times, MOQs, and exclusivity terms? A verbal relationship with a manufacturer in Shenzhen is not a moat — it's a risk.
- Inventory position. What's on hand and what's on order? Excess inventory is a liability. Stockouts in the trailing 6 months are a signal of operational strain and lost revenue.
- 3PL and fulfilment contracts. Are these transferable to a new owner? What are the termination clauses? Losing a fulfilment relationship post-close can destroy customer experience immediately.
Platform and Technology
- Platform dependency audit. Is the brand's entire operation dependent on a single Shopify app or third-party integration? Apps get deprecated. Integrations break. Understand the tech stack and its fragility.
- Ad account ownership. Confirm that ad accounts (Meta, Google, TikTok) are held in the brand's name, not the agency's or the founder's personal account. This is a common deal-breaker that surfaces late.
Legal and Intellectual Property
- Trademark status. Is the brand name and logo trademarked in the relevant jurisdictions? Has that trademark been tested against any challenges? Acquiring a brand with a contested trademark is acquiring a ticking clock.
- Product liability history. Have there been any customer injury claims, FDA notices, or CPSC actions? For health, wellness, or food brands, this is non-negotiable to verify.
The Most Important Question
After running through all 14 items, ask yourself: "Is there anything in this business that only works because of the current owner?" If the answer is yes — and you can't solve it through a structured transition period — renegotiate the price or walk away. The best acquisitions are systems, not relationships.