Deal Diligence · Buy-Side
Operational due diligence: will the earnings still be yours?
A Quality of Earnings proves what the business earned. It does not tell you who produced it, whether that person is leaving, or what leaves with him. This engagement tests the seats the earnings actually run through, the customers behind the numbers, and whether either survives a change of owner. Buy-side only, led by an operator, and built for deals of roughly $500K to $5M of EBITDA.
Hoosier Supply Co. · Illustrative
Three findings that do not appear in the financial statements.
42%
Of revenue sits behind a 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. There is no account manager on the account and no system in which one could exist. Nine years of purchase orders, with no term and no assignment language.
1.8 of 5
Leadership bench, the lowest of the five dimensions scored
The binding constraint is not the one most buyers expect. Owner dependence is the symptom, and the reason it cannot be fixed on a normal timetable is that 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.
The handoff
A buyer cannot run these two tests himself without tipping off the seller.
You can read every document in the data room and still not know who the customer calls when a job sits three weeks. Ownership of a relationship is not a recorded fact. It lives in a mobile phone, a twenty-year habit, and a name that never appears on an invoice. There are two ways to find it out and neither is available to you. You cannot put the owner and his office manager in separate rooms and ask each what she is allowed to decide. You cannot call four of the target’s customers, because a leaked process costs the seller his business. We can do both, through the seller, with written consent, and Jared Luegers makes those calls himself.
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 defined by the outcome it owns, not by the title on the payroll register. On the sample business the owner holds the buying relationship, twenty-eight years in it, 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.
How it ends
Two gates decide it, and each outcome changes a different part of the deal.
Transferable means an ordinary transition carries it, and price stays a negotiation about the numbers. Transferable with conditions means it carries on terms your lawyer can write: a seat under agreement before close, a covenant where there is none today, an escrow sized to one account rather than to a general worry. Not transferable as structured means what produces the earnings does not survive the seller’s departure on any timetable we can name. That is a different deal, not no deal.
Scope
Eight workstreams, scoped in writing before anything starts.
The forward plan
Everything left of the close is a condition you can still get. Everything right of it is a cost.
Twelve actions across four bands. An action without an owner and a measure is a wish, and a plan of wishes is how the first year gets away from a new owner.
If you want the plan run rather than written, that is the embedded CFO and operating partner engagement.
See the actual work
You can read a whole operational review before you decide.
The readout excerpt
The five seats, the scorecard and the verdict page from a full operational review. Three pages is enough to tell whether a firm can actually do this, which is the only reason to offer them.
Ask on the call or by email. It comes back the same day, with no form to fill in.
The full sample report
Fourteen pages: the findings register, the reference-call verbatims, the revenue-at-risk scenarios and the hundred-day plan. Hoosier Supply Co. is fictional 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.
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get started
Find out whether the earnings transfer while you can still price it.
Three ways to buy it: standalone, bundled onto a LIMESTONE review, or run on your own business before a buyer runs it on you. Bring us the deal on your desk. A short call, then one fixed fee in writing, usually inside a business day. If this deal does not need a full operational review, that is what you will hear. Indiana-rooted. Serving buyers and owners nationwide.