A press brake operator forms a sheet while welders work behind him in a metal fabrication plant.

Deal Diligence · Buy-Side

Operational & Market Diligence: investigate the business behind the numbers.

Historical earnings don’t tell you whether a business can sustain them. LIMESTONE’s Operational & Market Diligence examines management, owner dependence, customer relationships, operating capabilities and risks to future performance.

Where relevant, the investigation can include competitive pressure, pricing power, market disruption and financial downside scenarios. We tailor the work to the transaction, with customer interviews, market research and deeper fieldwork defined in advance.

What we investigate

Operations · Market

01 / Operations

Will the business transfer?

Owner dependence
Customer relationships
Management capability

Example risk

Key accounts depend on the seller.

02 / Market

Will the economics hold?

Competitive pressure
Demand durability
Pricing power

Example risk

Quoted-work margins face competitive pressure.

How the findings inform the deal

Valuation assumptions

Risks to reflect in the buyer’s model.

Deal terms

Issues to discuss with transaction advisors.

Transition priorities

What needs attention around closing.

Illustrative. Transaction decisions rest with the buyer and its advisors. Financial QoE is separately scoped.

The two reads

Two questions worth investigating.

Every workstream below answers one of these two, and each finding feeds the buyer’s model, the deal terms or the transition plan.

Hoosier Supply Co. · Illustrative

Three findings that do not appear in the financial statements.

23%

Of revenue sits behind one relationship the owner holds himself

The customer named him as first call without being asked, and the sales system carries him as representative of record: two of the three tests the sample uses for an owner-held account (the third is his own account in interview). There is no account manager on the account and no system in which one could exist. Nine years on purchase orders, with no term and no assignment language.

1.8 of 5

Leadership bench, the lowest of the five dimensions scored

Owner dependence is the symptom; it cannot be fixed on a normal timetable because there is no second seat to move the work into. Neither of the two people a buyer has to keep is under an employment agreement.

$77K

A year of gross profit inside one price file nobody reset

Product cost moved from 63.5% to 64.2% of revenue in FY2024. The price file was last recalibrated in FY2023 and nobody re-priced the step, so roughly $2.9M of revenue is quoted without a framework. The statements show the margin slipping. Only the quoting process says why.

Where the documents stop

Both reads, one boundary

A Quality of Earnings can test

Historical earnings and cash support within the agreed scope
Earnings adjustments supported or declined by evidence
The financial effects of owner-related and non-recurring costs
Initial operating or business risks apparent in the reviewed information

Deeper procedures can investigate

Who customers rely on and why they stay
How responsibilities and decisions actually move through management
What makes the product or service difficult or easy to replace
How competition, technology or demand shifts could affect margins
Which revenue exposures matter to a credible downside case
Whether the business has the resources to adapt after closing

Every QoE includes an initial operating perspective from the agreed information; the financial work is complete on its own. The deeper procedures shown here are separately defined and priced only when they would improve the transaction decision.

The handoff

Who the customers rely on, and who actually decides, is not in the data room.

A data room may show customer concentration without explaining why those customers buy or whether the relationship survives a change of ownership. Financial records may show margin compression without revealing changes in bidding, pricing or competition. Where permitted, we triangulate records, seller-authorized interviews and relevant external information. Buyers may conduct some of this themselves; our role is to apply a disciplined method, document evidence and separate observed risks from assumptions.

A buyer and the owner walk an aisle of a wholesale supply warehouse.

Owner dependence

Three of the five seats that produce the earnings are held by the owner, and not one has a successor.

A seat is the outcome a person owns, whatever the payroll register calls the job. On the sample business the owner holds the key customer relationships, twenty-eight years in the seat, and purchasing runs through him with no documented procedure. None of that is in the data room. It comes from his calendar, from where the approvals actually route, and from asking his office manager, in a separate room, what she is allowed to decide.

Where the authority actually sits

The five critical seats, and where the decisions land

The owner 3 of 5 seats

Revenue and key accounts28 years in the seat
Pricing and estimating$2.9M a year priced by hand
Purchasing and vendorsSole approver over $25K

None with a named successor.

The business 2 of 5 seats

Office and operationsOffice manager, 6 years
Books and close20 hours a week, half a seat

His calendar

61%

Of scheduled time over the trailing 90 days sat in customer, pricing or vendor meetings.

The approvals

11 of 14

Recurring approvals route to him, including every discount above 8% and every purchase order above $25K. Neither limit is written down.

These details may not be established by a standard QoE.

Drawn from calendars, approval routing and separate interviews, run only when the scope includes them and the seller agrees.

Illustrative; Hoosier Supply Co. is our sample company.

Scope

Eight workstreams, scoped in writing before anything starts.

The eight workstreams

One question each.

01Owner dependency

Does the business run, or does he?

02Revenue at risk

Which revenue could leave with a customer, a downturn or the owner?

03Bench depth

Is the second in command ready, or only titled?

04Systems and cadence

Could a competent stranger run this next Monday?

05Customer durability and pricing power

Why do customers buy and stay, and what could change that?

06Reference calls, where authorized

Why do customers choose the company, and who holds the relationship?

07Market and disruption position

Which market shifts or substitutes could weaken the economics?

08Financial resilience and forward plan

What could strain cash flow, and what comes first after closing?

How deep: Focused or Expanded

Focused

One or two defined concerns. Documents, the data room and seller-authorized interviews where the scope includes them. A Diligence Report and Supporting Exhibit Book sized to the questions.

Expanded

Several connected workstreams; adds customer reference calls, field observation and market analysis where specified in writing.

Workstreams are selected and documented in the engagement letter. A declined interview is recorded as a limitation and weighed in context.

The forward plan

Some risks are fixed in the purchase agreement. The rest take operating work after close.

A useful plan identifies the finding, the evidence, the decision to make, the accountable person and the measure of progress. Some risks affect price or deal terms; others require investment, management attention or further research after closing.

The first hundred days

From the sample’s twelve-action plan, by phase

Before close

Conditions in the purchase agreement

Owner-held seats under agreement; a covenant where none exists.

Days 1 to 30

Relationships and the pricing floor

The top account handed over with the seller in the room.

Days 31 to 60

Visibility, then the vendor seat

Replenishment on a rule; the change-of-control clause reviewed.

Days 61 to 100

Make the pricing seat permanent

The estimating seat backed; purchasing documented.

The wire clears

The binding constraint here is bench depth. Illustrative; Hoosier Supply Co. is our sample company.

Help carrying out the plan after close is a separate CFO & Operating Partner engagement with its own fee.

See the actual work

You can read a whole operational review before you decide.

The readout excerpt

The five seats, the scorecard and the findings page from a full operational review. Three pages are enough to judge the work.

Ask on the call or email jared@limestonesp.com. It comes back the same or next business day, with no form to fill in.

The full sample report

Fourteen pages: the findings register, illustrative customer-call themes, the revenue-at-risk scenarios and the hundred-day plan. Hoosier Supply Co. is our sample company, and every page says so. It includes the green findings as carefully as the red: a 96.4% fill rate named unprompted by five of six customers, set against three material service failures in 24 months.

Sent. It is on its way from Jared Luegers and usually arrives within a minute. If it does not, check your spam folder.

That did not send. Try once more, and if it still will not go through, contact us and we will send it across.

We use this to send the report and one follow-up, plus the newsletter only if you tick the box.

Questions We Get

What buyers ask before they commit.

Targeted commercial diligence, financial modeling and the specialist work a transaction requires can be scoped on request. An Exit Readiness Review covers related questions for a seller. If yours is not here, the full FAQ has more, or ask it on the call.

What does Operational & Market Diligence cover that a Quality of Earnings does not?

A QoE tests historical earnings and related financial matters and includes Jared’s initial operating perspective. Operational diligence can examine management authority, owner dependence, customer durability, operating processes and risks to future performance. Depending on the written scope, that may include seller-authorized interviews, competitive research, market-disruption exposure and downside sensitivities. Comprehensive commercial, technology, legal or HR diligence is not automatically included.

Do you talk to the customers?

Customer calls may be included in a buy-side engagement when the seller authorizes them in writing and the appropriate introductions and confidentiality protections are in place. We do not contact a target’s customers without permission. A refusal or unavailable interview is recorded as a limitation; it is not, by itself, proof of a problem.

How long does it take?

Timing depends on the breadth of agreed work, how quickly information arrives and whether interviews are permitted. A focused engagement usually runs 15 to 20 business days from Day 1, the later of the last critical item and cleared payment; we confirm the date and our capacity at scoping.

Someone else did the Quality of Earnings. Can you still do this?

Yes. Operational diligence may be commissioned after another provider’s QoE. We can use that report as relevant context with the client’s permission while independently defining our own scope. We do not reissue or endorse another firm’s conclusions, and we do not advise both sides of the same transaction.

What do the findings mean for my price and structure?

The report can identify risks that warrant additional diligence, transition protections, different deal assumptions or a change to the operating plan. It does not set a purchase price or guarantee a contractual outcome. Buyers and their legal and financial advisors decide which findings affect terms.

I am buying with an SBA loan. Do I need this?

The SOP does not require it; its mandate is financial. What it does require is a quality of earnings for the lender on a 7(a) acquisition of $3 million or more, and nothing in SOP 50 10 8.1 asks for reference calls or a seat-by-seat read. Two rules make the operating read worth having anyway: the seller cannot stay on as an officer or employee, and a seller consulting contract is capped at 24 months. The detail is on the SBA page.

What is this engagement not?

It is not a financial QoE, an appraisal or a guarantee of future performance. It is not, by default, an exhaustive industry study, cybersecurity review, technology audit, legal review or HR diligence engagement. We identify what is within our scope, what remains uncertain and when a specialist is needed.

get started

Investigate the business behind the earnings before you rely on them.

We can scope operational diligence as a standalone assignment, alongside a LIMESTONE QoE, or as a readiness-focused investigation for an owner. Tell us the transaction stage and the risks that concern you. We will agree on the procedures, access permissions, deliverables and fixed fee in writing. If a targeted question or specialist is the better answer, we will say so.

Jared Luegers, CFA · Founder and Managing Partner · jared@limestonesp.com

Ryan Anoskey, CPA · Partner · ryan.anoskey@limestonesp.com