A financial review of an acquisition target before the price and structure are fixed: how reliable the earnings are, what the working capital looks like, how the deal should be structured, and what to plan for after close. We work alongside your attorney and lender; we don’t source deals.
Three areas where a careful review before signing changes the outcome.
Sellers present adjusted earnings in the best light. Owner compensation, related-party expenses, one-time items: some adjustments are legitimate, some are not. The work is sorting which is which before the price is fixed.
Working capital adjustments come due in the months after close. Receivables turn out to be older than presented; customers leave. Diligence looks at the trend, not just the closing balance.
Asset or stock purchase, allocation of basis, treatment of goodwill, and available elections. The structure affects the buyer’s tax position for years and is far easier to settle before the purchase agreement is drafted.
Buy-side diligence is for buyers with a specific target on the table who want an independent read of the financials before committing.
"I’ve never bought a business before. I want someone in the room who has."
You’ve identified a target that fits your strategic plan. The seller is willing. The broker is engaged. What you don’t have yet is anyone on your side reading the financials with the skepticism they deserve. The work is bringing in someone whose only job is to find what doesn’t add up before the price is locked.
"I already operate one of these. I know what to look for. I want a second set of eyes."
You operate in the industry already and know the operating economics. What you need is independent confirmation of what the seller’s books are showing — whether the customer concentration risk is material, whether the addbacks are defensible, whether the working capital is what it appears to be. The job is verifying the financial picture against the operating picture you already understand.
"I know this business. I just need to know I’m paying the right price for it."
You’re buying out a partner, acquiring a competitor, or pulling a related entity into your structure. Familiarity with the operations is not a substitute for diligence on the numbers — in fact it can be a liability, because you’ll under-question what you think you already know. The work is structured skepticism applied to a deal you’re already inclined to do.
Buy-side diligence isn’t a single deliverable — it’s a sequence of structured workstreams, each one informing the next. Most engagements move through these phases. Some are a focused review of one target; some span the full path from LOI to post-close integration.
Before you sign the letter of intent, a fast-turn financial review of the target. We read the seller’s financials, the broker’s deck, the trailing twelve months of operating data — looking for the questions you should be asking before the LOI is signed and exclusivity locks you in. You leave with a written brief: what looks defensible, what looks suspicious, what to negotiate before signing.
The core diligence document. We rebuild the seller’s EBITDA from the bookkeeping detail up — testing every addback, separating recurring revenue from one-time, identifying customer concentration, confirming margin trends, surfacing related-party transactions. This is the document that determines whether the price holds, drops, or restructures. Four to eight weeks depending on data quality.
Every deal has a working capital target and a balance sheet at close. Both are negotiated, both have real money in them, and both are where buyers regularly leave value on the table by accepting the seller’s number. We model the trailing 12-month average working capital, identify what should and shouldn’t be in the peg, and flag balance sheet items that need attention before close — aged AR, slow inventory, deferred revenue treatment.
Asset purchase or stock purchase. Allocation of basis. Treatment of goodwill. F-reorganization vs. 338(h)(10) election. The structure of the deal decides how much tax the buyer pays for the next decade. We model the after-tax economics of the structures the seller is willing to consider, coordinate with the transaction attorney on document language, and surface the structuring decisions before they get baked into the purchase agreement.
Closing day cash adjustment. The handover of accounting records. Day-one financial reporting. The first 90-day operating cadence. Working capital true-up when the post-close adjustment comes due. Most diligence engagements transition into ongoing fractional CFO advisory at this point because the same advisor already knows the file. The deal is the beginning of the work, not the end.
Examples of the written work a buy-side engagement can produce: the documents that support you in negotiation and financing and travel into post-close integration. What any engagement includes is set out in writing before work begins.
Written assessment of the target before you sign the LOI. What looks defensible, what looks suspicious, what to negotiate before exclusivity locks. The document that protects you from signing a bad LOI.
A formal QofE document. Tested addbacks, recurring vs. non-recurring revenue, customer concentration, margin analysis, related-party exposure. The single most important diligence document and the basis for any price renegotiation.
Trailing 12-month working capital analysis with a defensible peg, plus identification of balance sheet items that need attention before close — aged AR, slow inventory, deferred revenue, accrued liabilities the seller may have missed.
Written analysis of the structuring options — asset vs. stock, basis allocation, goodwill treatment, election eligibility — with after-tax economics modeled side by side. Coordinated with your transaction attorney for inclusion in the purchase agreement.
A written list of the items diligence surfaced, with our position on each, the seller’s likely response, and the negotiating room around the price. The document you bring to the renegotiation conversation if one becomes necessary.
Day-one reporting setup, the first 90-day operating cadence, working capital true-up modeling, books integration into your existing accounting environment. The deal is the beginning of the work.
Buy-side diligence is scoped to the deal in front of you: a review of one target before you sign a letter of intent, the earnings and working capital work after it, support through structure and close, or a second set of eyes on one stage when you already have an advisor on the deal. Scope, deliverables, timing, and fees are set out in writing before any work begins.
"Do you find acquisition targets for clients?"
No — we don’t source deals or run target searches. Most clients arrive having already identified a specific target through a broker, a private listing, or a relationship. We step in once a target is on the table and the question is no longer whether to look but whether to buy. For deal sourcing, we coordinate with the right broker or M&A banker for the situation. The boundary between sourcing and diligence is real and we honor it.
"What does diligence actually surface that buyers don’t see on their own?"
The diligence work is separating the operating story the seller is telling from the financial story the books are showing. Common findings: owner compensation that masks the real cost of running the business, customer concentration the seller minimized, working capital trends that suggest the business is harder to operate than the deck implied, addbacks that won’t survive a buyer’s scrutiny, and contract or lease language that materially changes the deal. Most QofE engagements surface five to fifteen meaningful items — not because sellers are doing anything wrong, but because they’ve learned to present their business optimistically and you need someone running the math the other direction.
"Can a deal still be worth doing if diligence finds problems?"
Often yes. Findings more often reprice or restructure a deal than end it. The work is making sure the price reflects what is actually being bought. Earnings adjustments can change the multiple a price is based on; a tax exposure found in prior-period reporting can call for an escrow or an indemnity. The point is to know, not to walk away.
"How does this work alongside our attorney and lender?"
Diligence is one of three workstreams in any acquisition: financial diligence (us), legal diligence (your attorney), and financing (your lender or equity partner). We coordinate directly with both — your attorney handles purchase agreement, escrow, and rep-and-warranty negotiation; your lender or equity partner handles the financing structure; we handle the financial picture and feed findings into both the legal documents and the financing model. Each lane stays in its lane.
"What happens after the deal closes?"
Many buyers continue into ongoing fractional CFO advisory after close, because the integration work fits that cadence. Day-one financial visibility, the first 90-day operating cadence, the integration of the acquired books into the buyer’s reporting environment, and the working capital adjustments that come due in the first few months. The diligence engagement and the post-close engagement are separate decisions; many clients hire for both because the same advisor already knows the file.
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