The Five General Areas of Due Diligence

AdobeStock 404864893We’ve all seen television ads for car companies that offer to buy your used car online. You fill out a short questionnaire, they quote a price and tell you where to drop it off. If only it were that easy. When you arrive is when they look under the hood—and everywhere else. Inevitably they adjust the price downward.

In the last edition, we discussed private equity’s recent interest in land surveying and the opportunity to sell for more. Private equity firms, much like car dealerships, are going to look under the hood. And because they don’t have a background in surveying, they seek clarity. Anticipating and preparing for their questions will result in a better offer. Let’s delve into the five general areas of due diligence private equity buyers prefer to focus on:

Financials: Every buyer begins by looking at the price of the company in relation to profit. The biggest mistake I see is sellers basing their asking price on profit that ‘once was’ or ‘could be.’ Buyers only care about current results—make sure you price the business accordingly and don’t lose them before the process begins. Often a starting asking price is three times income. Perhaps four if you own a larger company. Next, present your financials in an understandable format prepared by your accountant. Accompany the numbers with a short narrative about your company that highlights opportunities going forward.

Clients: Buyers will want to understand the source of your business. Compile a 12-month client history, detailing clients by name and industry, and value of orders. If your business heavily depends on a few clients, explain how and why this relationship will continue. Be specific and avoid vague statements. Instead of saying, “They use us for all their surveys,” provide concrete examples. “Jim Smith, the foreman, has a ten-year relationship with our company. He uses us exclusively because he knows he can call our crews directly and get immediate answers to his questions. “

Operating Procedures: They may be second nature to you, but they also need to be clear to a potential buyer. Evaluate and adjust them objectively. Outline how you quote jobs, follow up, track payments, and manage collections. Explain your research and filing methods. Don’t assume the buyer is familiar with surveying practices and will ‘get it.’ An easy and cost-effective means of streamlining is to invest in a survey-specific software program. There are multiple offerings available at various price points depending on the size and complexity of your operations.

Records: Well-maintained records can significantly enhance your firm’s value. Quantify how your records contribute to efficiency. Maintain a job logbook and document how you use your records to reduce field, drafting, or review time. Calculate their impact on your bottom line.

Personnel: A company is only as strong as its people. Provide a brief overview of your key personnel and their strengths. Buyers will want to grow the business. Inform employees of a potential sale and the opportunities for advancement that will come with it. Seek their commitment to stay. Buyers seek continuity and employee commitment to a smooth transition is a huge positive.

Bottom line, it is never too early to start preparing for a sale. Getting everything under the hood looking good and running smoothly gets you the best price. In the next installment we’ll look at how best to identify and reach potential buyers. As always, please feel free to share your comments or queries with me at or connect with me on LinkedIn.

Richard Radke is a seasoned business executive and entrepreneur with a diverse background in strategy, finance, operations, marketing, technology, and business development.