Financial due diligence
Financial due diligence, and we do none of it.
We used to run this work in house. We stopped. Every enquiry that reaches this page now goes to a specialist who does nothing else, and the introduction costs you nothing. Tell us about the deal and we will tell you which kind of specialist it actually needs.
Why we refer this out
This page used to argue the opposite.
It said that because we arranged the finance on these deals we should also test the earnings on them, and that running both kept one set of numbers instead of two. That argument had a good half and a bad half, and the bad half won.
The good half is still true. A commercial credit team will rebuild the vendor’s earnings whatever you do, and it is cheaper to find what they will find before they find it. The bad half is who should do the finding. Whoever arranges the finance is on one side of the transaction. That is the structure, and it applies to Nick on the deals he arranges through The Lending Lab exactly as it applies to anyone else on theirs.
Volume decided the rest. More of this arrives than one firm should take on and still do properly, and the deals that arrive deserve someone who does nothing else. So we stopped. We no longer perform financial due diligence for anyone, on any deal, at any size. What we do instead is read the deal, work out which discipline it needs, and make the introduction.
What we no longer do
The list, so nobody has to ask.
- Financial due diligence on a business acquisition, at any level and any deal size
- Quality of earnings work, normalisation bridges and add-back testing
- Working capital analysis or a completion adjustment recommendation
- Any report written for a lender to rely on in place of its own credit work
- Sell-side preparation, or getting a vendor's numbers ready for sale
- Reviewing, checking or signing off another specialist's diligence report
We do not provide valuations, and we do not provide audit or any assurance opinion. That much has always been true and has not changed. What changed is that the financial diligence itself has joined that list.
The problem
Why good deals get declined.
The vendor hands you an adjusted figure.
Add-backs with nothing behind them. Owner wages left out of the costs. Rent paid to an entity the owner controls, at a number the owner chose. Maintenance capex provisioned at nothing. Every one of those lifts the earnings, and the asking price is a multiple of the earnings.
$50,000 of add-backs nobody evidenced is $150,000 on the price at a 3x multiple.
Nobody tests it.
Your accountant is your adviser, not the deal's investigator, and lenders want the earnings tested at arm's length. Most buyers engage no one at all, so the vendor's figure goes straight into the price, the loan application and the contract.
A specialist's diligence fee is a fraction of a six or seven figure price. It is the cheapest line in the transaction, and the only one that can tell you not to spend the rest.
The bank tests it, and declines.
Not on merit. Credit teams assess at a rate above the one you were quoted, against a cover ratio the vendor's figure was never built to clear. Deals that service perfectly well are declined because the earnings case was not assembled the way an assessor reads one.
On a $1.2m facility over ten years, two points between the quoted rate and the assessment rate is about $15,500 a year of debt service.
The number the price is built on is usually the number nobody has tested.
Who the work goes to
Six disciplines, and none of them is us.
We name professions here rather than firms, which is how this site has always handled the people it works with. A named firm on our page puts our reputation on their next engagement, and it needs their written consent to do it. The discipline is the thing you actually need to know, because it tells you what to look for and what to ask.
Most deals need two or three of these. Very few need all six, and a specialist who tells you otherwise is selling scope.
Transaction services and financial diligence
The core of it. What the business actually earns once an arm's-length owner is running it.
- Revenue reconciled to BAS lodgements, bank deposits and the ledger
- Every add-back the vendor has claimed, tested against evidence
- Owner remuneration and related-party arrangements unwound
- A normalised earnings bridge, with each adjustment evidenced
- Working capital, and what the completion adjustment should be
- A report written so a lender can rely on it, where the deal needs one
When you need it. Always, on any deal where the price is a multiple of the earnings. Which is almost all of them.
What to look for. A chartered accounting firm's transaction services team, or an independent practice that does financial diligence and nothing else. Ask what proportion of their work is transactions.
Tax and structuring advice
How you buy it changes what you keep. That question has a deadline and it is before you sign.
- Assets or shares, and what each one leaves you carrying
- The entity that should hold it, and who should hold the entity
- Stamp duty across the states the business touches
- GST, and whether the sale qualifies as a going concern
- Employee entitlements transferring at completion
- The tax position of the vendor's add-backs once you own them
When you need it. Before the contract is drafted, not after. Structure is very hard to fix once the terms are agreed.
What to look for. Your own accountant first, and a specialist tax adviser where the structure is a group, a trust, or spans more than one state.
Legal due diligence and the contract
The numbers tell you what it earns. The contract tells you what you are actually buying.
- The contract of sale, the warranties and what they are worth
- Lease assignment, the option terms and the rent review mechanism
- Restraint of trade, and whether it holds where the vendor lives
- Registered security interests and encumbrances over the assets
- Customer and supplier contracts, and whether they survive a change of control
- Employment transfers, awards and accrued entitlements
When you need it. Every deal, and earlier than most buyers engage one. The lease is usually the second largest thing you are buying.
What to look for. A commercial solicitor who does business acquisitions regularly. A conveyancer is not this, and a general practice lawyer may not be either.
Operational and commercial diligence
Whether the earnings survive you. Numbers are history, and this is the part that is not.
- Who the customers actually are, and how concentrated they are
- Whether the relationships belong to the business or to the vendor
- Key people, and which of them are leaving at completion
- Systems, processes and what is only in somebody's head
- Suppliers, terms and the ones with no second source
- Where the business sits in its market, and who is coming for it
When you need it. Where the vendor is the business, where the top few customers are most of the revenue, or where you are buying into a sector you have not worked in.
What to look for. A sector specialist or a corporate advisory practice. The useful test is whether they have run or bought a business like this one, not whether they have written about it.
Property, plant and site inspection
The physical things, checked by people who put their name to the condition of them.
- Building and pest inspection where premises come with the deal
- Environmental and contamination assessment on industrial sites
- Plant and equipment condition, and what is near the end of its life
- Maintenance capital expenditure the vendor's figures never provisioned
- Fit-out condition, and make-good obligations under the lease
- Licences, approvals and whether the site can keep doing what it does
When you need it. Any deal with premises, a fit-out or material plant. The maintenance capex point catches more buyers than the building report does.
What to look for. Licensed and insured inspectors in the relevant field. For plant, someone who works in that equipment rather than a generalist.
Franchise specialist advice
A franchise purchase is two transactions. Most buyers only get advice on one of them.
- The disclosure document, and what the cooling-off period actually gives you
- Franchisor obligations under the Franchising Code of Conduct
- Royalties, marketing levies and the fees that sit outside both
- Territory terms, and what happens at the end of the term
- Network performance against the particular site you are buying
- Transfer and renewal conditions, and the franchisor's consent
When you need it. Every franchise or licensed-brand acquisition, alongside the financial and legal work rather than instead of it.
What to look for. A solicitor or adviser who works in franchising specifically. The Code is its own body of law and a general commercial practice may not act in it often.
What diligence actually covers
Scopes vary between firms and the labels are not standardised, but the work tends to stack in roughly this order. It is worth knowing before you read a quote, because the gap between the first and the third is where most of the fee sits.
Financial verification
The light engagement. Common on straightforward acquisitions, or where a buyer wants a fast read before committing to a full process.
- Revenue reconciled to BAS lodgements and bank deposits
- Expense trend analysis across three years
- Review of every add-back claimed by the vendor
- Owner remuneration and related-party transaction identification
- A red flag memorandum with the questions to put to the vendor
Scoped due diligence
The standard engagement on an owner-managed business acquisition. Everything above, plus:
- An adjusted EBITDA normalisation bridge, with every adjustment evidenced
- Working capital analysis and a completion adjustment recommendation
- Balance sheet review, asset verification and PPSR searches
- Liabilities, commitments and contingencies
- Employee entitlements and superannuation compliance exposure
- Customer concentration and revenue sustainability
- Sector-specific operating metrics
- A written findings report with recommendations on price, structure and contract protections
Full earnings analysis
Where the transaction is material, a lender requires it, or a vendor is preparing to sell. Everything above, plus:
- Source-document sampling and proof-of-cash testing
- Monthly analysis across 24 to 36 months, including seasonality
- Detailed maintenance capital expenditure assessment
- Sensitivity and downside scenario modelling
- A formal report prepared for reliance by the buyer and a nominated lender
Sizing up a vendor's add-backs yourself first? The free adjusted EBITDA calculator lays the schedule out line by line. It takes the figures on trust, which is precisely what diligence does not do.
How an introduction works
Four steps, and none of them costs you anything.
01
Tell us about the deal
The form on this page, or a call. What the business is, roughly what it is selling for, where you are up to, and what you already have. Fifteen minutes is usually enough.
02
We tell you which disciplines it needs
Plainly, and including the ones it does not need. There is no charge for that conversation and nothing to sign at the end of it.
03
We make the introduction
By email, to a named person, with enough context written down that you are not starting the story again from the beginning.
04
Their engagement, their fee, their report
You engage them directly. The scope, the fee and the terms are between you and them, and so is the report. We are not a party to it.
Before you take our word for it
What we get out of this.
Nothing is paid to us for an introduction, in either direction. No referral fee, no share of the specialist's fee, no rebate, and no requirement that they send work back to us. We are putting that here rather than leaving you to wonder about it. If it ever changes, this paragraph changes first and before the arrangement starts.
The reason to take the introduction is narrower than it sounds. We have read the financial records of hundreds of Australian businesses from the credit side of the desk, so we are good at one specific thing: working out which discipline a particular deal needs, and in what order. We make no claim about the quality of anyone's work on your matter, and we do not supervise it, review it or stand behind it. Ask them for their qualifications, their professional indemnity cover and two references from buyers, exactly as you would if you had found them yourself.
What we still do
The funding side of the same transaction.
Once a specialist has tested the earnings, somebody has to turn that into a facility. That part has not changed and it is now the whole of what we do on an acquisition.
Acquisition finance
The submission written from the evidenced earnings, taken to the lenders who will actually do the deal.
Commercial financeLender-ready documents
Serviceability models, funding requests and information memoranda, built to hand straight to a credit team.
Finance documentsDebt capacity
What the business can actually carry, before you agree a price that assumes it can carry more.
Debt capacityTwo ways this can work.
We do the advice work and build the file. Who arranges the loan is your choice: your own broker or bank, or a referral we make for you.
Want the finance arranged as well?
We do the advice work and refer the lending. Business and commercial lending goes to The Lending Lab, where Nick is a credit representative, and development and construction finance goes to Andorra Private. Your file goes with you, so nobody starts again.
Ask about a finance referralAlready have a broker or a banker you trust?
Keep them. We will build the file to the standard a credit team expects and work directly with whoever lodges it. Same models, same documents, same standards, at the same fixed fee.
See the finance documentsWant to know which specialist this deal needs?
Tell us about the business and where you are up to. We will tell you which disciplines it needs, which it does not, and make the introduction. No charge and nothing to sign.
Common questions
No. Not at any level, not at any deal size and not for any fee. We used to, and we stopped. Every enquiry now goes to an independent specialist, and the introduction is free. If a broker, an accountant or a business broker sent you to us for diligence, the work is still worth doing. Tell us about the deal and we will point it at the right discipline.
Two reasons, and the second is the real one. The first is structural: whoever arranges the finance on a deal is on one side of it, and Nick is also a credit representative at The Lending Lab, where referred lending is arranged. The second is volume and focus. More of this work arrives than we should take on and still do properly, and the deals that arrive deserve a specialist who does nothing else. Running it as a second practice alongside the advisory work was never going to beat that.
Independent specialists in whichever discipline the deal needs. This page describes the disciplines rather than naming firms, which is how this site handles every professional it works with. A named firm on our page puts our reputation on their next engagement, and it needs their written consent to do it. The introduction itself is to a named person, by email, with the context already written down.
No. No referral fee, no share of their fee and no rebate, and we do not require the specialist to send work back to us. If that ever changes it will be written on this page before the arrangement starts, not afterwards.
That is the specialist's fee and theirs to quote, so we do not publish a number for work we do not do. What moves it is the size of the transaction, the number of trading entities, how complete the records are, and how far you want the work to go. Every other fee on this site is still on the page, because those are engagements we actually perform.
Not ourselves. We build the finance documents and advise on the debt. Where you want the lending arranged, we refer business and commercial lending to The Lending Lab, and your file goes with you. Nicholas Clunes is Credit Representative Number 530711, authorised under Australian Credit Licence Number 387856, through The Lending Lab Pty Ltd. Where a lender pays commission on a facility it is paid to The Lending Lab and Nick may benefit from it; it is not payable on every transaction and the amount is not ascertainable when we quote you. Taking the introduction does not oblige you to take up the finance referral, and taking up the referral does not oblige you to take the introduction.
No, and it is worth knowing the difference before you brief anyone. Due diligence is a commercial review of what a business earns once a new owner is running it, built from source documents. It gives no assurance over financial statements and it is not audit work. A specialist who offers you one when you asked for the other is answering a different question.
Often yes, and they are the first person to ask. Two things to weigh. Deal analysis runs on the vendor's timetable, which rarely respects your accountant's calendar. And a lender reads a report written at arm's length differently from one written by the adviser who also prepares your accounts. Where your accountant would rather not take it on, that is exactly the introduction we make.
Their qualifications and who regulates them. Their professional indemnity cover and the limit on it. Whether the fee is fixed before they start or charged by the hour, and what happens if the records turn out to be patchy. Whether the report is written so a lender can rely on it, and what that adds. Two references from buyers rather than from vendors. And whether they have done this in your sector, because sector metrics are where a generalist stops being useful.