Which decisions should diligence answer?
Establish what buyer receives, supported earnings, inherited or funded duties, and conditions for work. Begin with offer assumptions. Identify records that confirm or change each. Diligence should produce reviewable findings, not just a folder with no explanation of what its contents prove.
Assign questions and a resolution standard. Vehicle records should inform title, liens, condition, or replacement. Payroll tests cost, roles, and continuity. Record the finding and gap. Receiving the file does not itself resolve its question or show that all relevant risks were reviewed.
The buying hub supplies context. Adapt review to actual services and jurisdiction. Residential, commercial, excavation, and complex-project work can need different depth. Scope requests to actual work and risks rather than assume an identical list fits every company.
How should the scope and record trail be organized?
Identify entities, sites, services, assets, contracts, and exclusions. Date reports and name accounting basis. Preserve exports and provisional status. Save correction reasons. Before comparing totals, establish which operation and period each source covers and what changed.
IRS Publication 583 describes records for receipts, costs, and assets. Use them to trace financial claims. They alone do not prove earnings that transfer or what buyer receives. Link them to terms and buyer's plan, with reviewers stating what is supported and where more proof is needed.
Index files and link findings. Record source, period, reviewer, result, uncertainty, and next step. Preserve original and revised exports with correction reasons. Advisers need consistent versions and the evidence behind each changed amount rather than unmarked replacement files.
How are revenue and earnings verified?
Tie statements to ledgers and supporting activity. Compare invoices, work, credits, refunds, collections, banks, and processors on defined dates. Explain loans, transfers, and advances. Trace material differences; deposits alone do not prove current service revenue or identify valid timing and errors.
Show changes beside original results. Include necessary replacement work, rent, maintenance, and recurring costs. Check repeated add-backs. Bigger earnings are not automatically better supported. Each bridge line needs amount, period, purpose, and evidence for buyer cost, with remaining work funded after seller leaves.
The P&L guide tests job costs and line margins. Sample records, then expand review of unexplained gaps as needed. Keep suspected errors, missing proof, and accepted changes separate. State sample limits. Selected work does not prove every job or all periods without the corresponding tests.
What operating capital and obligations need review?
Age receivables and review disputes, retainage, credits, and collections. Test usable inventory, counts, and ownership. Reconcile payables, deposits, memberships, unfinished jobs, refunds, and warranties. Records and terms must establish what transfers and which remaining services or costs buyer funds.
Apply proposed working-capital wording. Who keeps cash and collections, performs prepaid work, and calculates adjustments? Trace amounts and duties once. Contract definitions may differ from generic balance-sheet totals or another deal's target and accounts; preserve the actual map and calculation.
| Evidence area | Test to perform | Possible decision effect |
|---|---|---|
| Receivables | Trace aging, disputes, and collections | Adjust collectability or capital assumptions |
| Customer advances | Match receipts to remaining work | Define assumed obligations and cash treatment |
| Memberships | Reconcile active plans and unperformed benefits | Fund future service and review transfer rights |
| Payables | Verify cutoff and classification | Confirm closing adjustment or payoff |
| Inventory | Test ownership and usable quantities | Revise included value or operating needs |
| Open projects | Compare billing, costs, and completion status | Identify margin and execution exposure |
Obtain detail behind material balances. Recorded amounts alone prove neither collectibility nor ownership, transferred duties, or closing adjustment. Compare source schedules and terms, with reserve, cutoff, and exclusion assumptions needed to reproduce the result.
Which staffing and qualifier dependencies are critical?
Map owner's work and replacements. Review wages, benefits, overtime, contractors, hiring, and management powers. Support cost and availability. A title or salary forecast alone does not prove a person can perform the role or that the buyer's post-close plan is funded.
The buyer-licensing guide separates personal licenses and company authority. The Texas company-change form shows one RMP and insurance process. It establishes neither automatic transfer nor a national grace period. Use actual state and local rules for the company, people, work, and transaction changes the buyer proposes.
Confirm rules for entity and ownership changes. Align qualified-person role and lender seller-role limits. Indefinite availability proves neither a permitted role nor lawful supervision. Obtain required approvals and permanent staff before treating the business as ready for the buyer to operate.
How should fleet, equipment, and safety be examined?
Identify owned, leased, financed, rented, and excluded assets. Obtain title, liens, contracts, maintenance, and inspections. Match offer and asset list. The fleet-diligence guide tests condition and replacement. Tax schedules alone do not establish legal ownership or physical readiness.
Does equipment fit work and can trained staff use it? Jetters, cameras, drain machines, and excavation assets affect capability and upkeep. Review use, skills, maintenance, and replacement timing. A tax list proves neither condition nor value, nor continuing services without further cash.
OSHA's trenching and excavation guidance covers serious hazards where that work occurs. Review actual practices, records, and standards with qualified people. It neither certifies target compliance nor gives every plumber identical exposure. Establish actual scope before assessing relevant duties and evidence.
Which customer and contract risks change the model?
Review customer, builder, manager, referral, and work concentration where records support it. Separate signed jobs, repeat habits, and pipeline estimates. Read price, payment, cancellation, transfer, and control-change terms. Historical sales do not promise renewal or unchanged collection and margins under buyer ownership.
Owner-held ties may need handoff. Repeat habits differ from committed work. Review documents and behavior before promising renewal. Identify evidence for continuity and forecasts. Consent and approved contact are separate questions; a historical customer report does not authorize direct buyer contact.
Review material leases, vendors, software, processing, and property rights. Counsel should identify consent and refusal effects. Track actions that affect terms, date, or budget. Account access alone does not establish buyer's contractual rights under a new entity or owner.
How do tax and lender reviews interact with diligence?
Form 8594 instructions cover allocation and reporting for specified asset purchases. Align assets, value, and assumed duties across tax, terms, funding, and funds flow. Ask advisers to apply actual facts. Matching price alone does not show every schedule describes the same deal or supported split among assets.
The current SBA SOP sets rules by purchase category. Specified Initial Acquisition and Business Expansion purchases need independent lender-benefit QoE at the threshold, with exceptions. Appraised owner-occupied commercial property is excluded from Business Purchase Price. Lower loan size or extra equity does not alone reduce that measure. Confirm complete rules with lender.
Seller reports, models, valuations, and lender QoE have different purposes. Confirm required scope, provider, and acceptance. Forecasts do not automatically cure missing history. Valuation does not approve every seller term or role. Track lender conditions until actual evidence and review clear them.
What systems and information risks belong in the review?
List critical accounts, data, providers, administrators, recovery, and rights. Confirm approved ways to gain control. Personal passwords are not routine evidence. Use supported account processes; a data export does not automatically establish the legal rights or control needed for every system.
NIST's small-business cybersecurity guide supports risk, access, roles, and incident planning. It is voluntary, not target certification. Apply it with a responsible technical reviewer. Identify actual gaps; referencing a framework does not show its controls or recovery arrangements already exist and work.
Protect personal data with approved access, needed fields, and disclosure records. Portability, ownership, consent, and payment authority differ. An export does not settle them. Preserve evidence while controlling identifiers and credentials; NDA wording is not unrestricted permission to distribute every record to every participant.
How should findings become a closing decision?
- Reconcile each material claim to evidence and identify remaining uncertainty.
- Quantify supported effects on earnings, capital, costs, or obligations.
- Resolve required authorization, funding, and consent dependencies.
- Agree appropriate contract treatment with the relevant advisers.
- Confirm the operating handover and decide whether to proceed.