AI consulting practice due diligence

Once a letter of intent is signed on an AI consulting practice, diligence should move quickly past the financial statements and into the documents that determine whether what you’re buying actually transfers. Because the firm’s real assets are relationships, a methodology and a delivery team rather than equipment or inventory, the paperwork trail matters more here than it would for a more conventional small business, and gaps in that trail are the findings most likely to change the deal.

Start with the client contracts

Pull every active statement of work and master service agreement and read the assignment language specifically. A contract naming an individual consultant as the deliverer, rather than the firm, is effectively non-assignable in substance even where the written assignment clause looks standard — a client can simply decline to continue the relationship once ownership changes, and there is often little practical recourse. Build a list of every contract that will need the client’s consent to assign, and factor the risk of any consent being withheld into your view of what the practice is actually worth.

Chase down every contractor IP assignment

Request the signed IP-assignment or work-for-hire agreement for every contractor or delivery consultant who has ever touched the firm’s framework, templates or client deliverables. A missing signature is not a paperwork technicality — it means the contractor may retain rights in something you’re about to pay for as if the firm owned it outright, and that gap does not go away simply because nobody has raised it yet.

Verify the methodology is actually the firm’s

Ask for documentation proving the proprietary framework or assessment tool is owned by the firm rather than personally by a departing principal, licensed from a former employer, or co-developed with a client under terms that limit its resale. Check whether any related trademark or domain registration is actually held by the business being sold, since a framework’s name recognition is worth little if the naming rights don’t come with it.

Audit how client data has actually been handled

Trace what happens to client data and any model outputs during and after each engagement, and confirm nothing confidential has been retained past the engagement’s end without a clear, documented basis for keeping it. PIPEDA governs this nationally, and any Quebec-based clients or engagements bring Law 25’s stricter consent and disclosure requirements into play — a firm that has treated every engagement the same way regardless of where the client is based has likely fallen short of at least one of the two standards.

Registry and status checks

Confirm the corporate entity’s good standing, run an execution or judgment search, and check that any trademark covering the firm’s name or framework is actually registered to the entity being sold rather than to an individual. These checks are quick relative to the rest of diligence, and a problem surfacing here is usually a sign to look harder elsewhere in the file.

Confirm what transfers automatically and what has to be re-earned

Not everything valuable in the practice moves to a new owner just because the purchase agreement says it does. Client contracts and statements of work transfer only where their assignment clauses actually allow it, so match every contract against your list from the earlier review rather than assuming a blanket transfer clause covers them all. Proprietary frameworks, templates and assessment tools transfer cleanly only if they were properly documented and are firm-owned outright, which the earlier ownership check should already have confirmed. The domain name, brand and any trademark registrations transfer with the corporate entity or asset sale, but confirm the registration itself is current and actually held by the business. Employment and contractor agreements for delivery staff are the one category that doesn’t simply transfer by operation of the purchase agreement — each person’s continued employment or engagement is subject to their own consent, and a buyer should confirm, before closing, that the specific consultants the deal depends on actually intend to stay. Treat any ’yes, they’re staying’ assurance from the seller as provisional until you’ve heard it directly from the consultant, ideally in writing.

Findings that should stop the deal

• A client contract naming the owner personally as the deliverer, with no realistic path to assignment.
• A contractor who built part of the firm’s core methodology and never signed an IP assignment.
• Confidential client data retained with no documented basis, well past when any engagement ended.
• Revenue concentrated in one or two engagements that could end with a single phone call.
• No non-compete or non-solicit on the senior consultant who actually carries the client relationships.