Industries · Buying a business · Pre-LOI
Financial Due Diligence for Business Acquisitions — By Industry
Financial due diligence follows the same method in every industry: tie each year to its stated totals, ask for the evidence behind every add-back, and list what's missing. What changes from one industry to the next is where that evidence lives, and which revenue and cost lines have to be pulled apart before the earnings figure means anything.
Below are the four industries TrueQoE has written buyer guides for. Each section explains how that industry's earnings evidence differs, then links to the full acquisition guide and to a checklist of the records to request before the LOI.
HVAC: where does a service company's profit really come from?
An HVAC company's books usually record revenue by account, not by type of work, so the P&L alone can't tell you whether the profit came from service calls, maintenance visits or replacement installs. The records that answer that question tend to sit outside the accounting system: the field-service or dispatch software, the maintenance-agreement roster, the fleet list and the payroll register. Financial due diligence on an HVAC deal is largely the work of matching those operating records back to the books, month by month, so you can see which kind of work the earnings depend on, and what that work will cost once the owner's own hours and any unpaid household help are priced in.
Healthcare and home health: how do you test earnings that arrive through claims?
Across healthcare services, including home health and home care agencies, revenue is usually earned when care is delivered but collected later, through claims a payer can reduce, deny or take back after the fact. That gap between the service and the cash is where healthcare earnings need the most evidence. The books record what was billed or expected; remittance advices, claims aging reports and denial records show what was actually paid, and when. Financial due diligence here means following a sample of revenue from visit to claim to deposit, and having healthcare counsel confirm that the licenses and enrollments the revenue depends on will still be in place after closing.
SaaS: which records sit behind subscription revenue and development costs?
A software business keeps two sets of numbers that rarely agree on their own: the subscription data in its billing system and payment processor, and the revenue and expenses in its accounting books. Buyers tend to start with the first, because that's where growth shows up. The earnings are settled in the second, and in how costs were classified along the way. Whether development work was expensed or capitalized, whether contractors were treated as an ongoing cost or a one-time project, and whether hosting grows with every new customer all change the margin you're buying. Diligence on a SaaS deal starts by agreeing the two sets of numbers, then reads the cost lines as closely as the revenue.
E-commerce: where is the evidence when the platforms hold the records?
Much of an e-commerce brand's financial history is held by other companies: the marketplace or storefront that took the orders, the payment processor and ad platforms that took their cut, and the warehouse or fulfillment partner that stored and shipped the stock. The bank account often receives a single net payout after those deductions. That makes the platforms' own order, settlement and inventory reports the primary evidence, and the bookkeeping a summary of them. Financial due diligence here starts with getting those reports exported for every period the price relies on, then checking that the gross sales, deductions and stock movements in them match what the P&L says.
Where does a TrueQoE First Pass fit, whatever the industry?
Short answer: In the same place in every deal: before the LOI, on the financials the seller has already sent. A First Pass ties each year to that year's stated totals, sorts every add-back into Documented, Needs support or Undocumented by its evidence, and names the records the package is missing. The industry-specific checks in the guides above are for you and your advisors to work through; a First Pass does not report on them.
See how a First Pass works, and what it leaves to your CPA and attorney.
What a First Pass is not. It works from the documents you upload and does not verify that seller-prepared records are authentic. It is not an audit, review, compilation, valuation, legal or tax opinion, or a Quality of Earnings report, and it does not satisfy a lender's Quality of Earnings requirement.
Frequently asked questions
Does financial due diligence differ by industry?
The method doesn't. In every industry you tie each year to its stated totals, test each add-back against its evidence, and list the records that are missing. What differs is which records hold the evidence, which revenue lines need to be separated, which costs the owner may be absorbing, and which specialists you'll need beside your CPA, such as healthcare counsel for a regulated business.
Which records should a buyer request in any industry before the LOI?
Annual P&Ls and balance sheets for every year the price relies on, the business tax returns for the same years, monthly P&Ls, and the seller's add-back schedule with the document behind each line. Then add the industry's own operating records: the agreement roster, the payer remittances, the billing export or the platform settlement reports.
What if the business you're buying isn't in one of these four industries?
Use the same method and ask one extra question: where does this business keep the operating records that prove its revenue and costs, outside the accounting system? The Add-Back Evidence Checklist covers the owner add-backs sellers use in any industry, and the pre-LOI financial analysis page explains the method itself.
Who should check the industry-specific items: you, your CPA or a specialist?
Usually all three, on different questions. You are best placed to judge customers, staff and operations. A CPA tests the accounting, tax and working capital. An attorney reviews contracts, licenses and what transfers at closing, and a regulated business such as a healthcare agency calls for counsel who works in that field. A TrueQoE First Pass covers only the earnings tie-out, the evidence label on each add-back and the missing-records list.