Due Diligence Checklist for Trades Business Acquisitions

Due diligence is not a formality. It's the process that turns a seller's story into verified facts. In trades acquisitions, the failure modes are predictable: inflated SDE, hidden liabilities, key-person dependency, and customer concentration. This checklist covers financial, operational, legal, and commercial diligence specific to HVAC, plumbing, pest control, and adjacent service businesses.

Financial diligence

1. Three years business tax returns — compare to P&L provided in data room.
2. Trailing 12-month bank statements — every deposit and withdrawal categorized.
3. Accounts receivable aging — anything over 90 days is a discount item.
4. Accounts payable — any disputed vendor bills or liens.
5. Customer concentration analysis — top 10 customers as % of revenue.
6. SDE normalization worksheet — every add-back documented and defensible.
7. Capex history — what was spent on trucks and equipment, what's deferred.
8. Working capital peg — calculate actual need at close, negotiate adjustment.

Operational diligence

Visit the shop unannounced if possible. Count trucks — do they match the fleet list? Talk to technicians without the owner present. Ask: 'Would you stay if ownership changed?' Review dispatch records for the last 90 days — call volume trend tells you more than the P&L.

• License verification — state contractor license current, no violations.
• Insurance certificates — GL, workers comp, auto — all current, adequate limits.
• EPA certifications for HVAC (Section 608) — liability transfers with acquisition.
• Vehicle titles and lien status — owned vs. leased fleet.
• Tool and equipment inventory — especially diagnostic equipment for HVAC.
• Software systems — CRM, dispatch, accounting — and data exportability.

Commercial and customer diligence

Request the customer list with revenue by account for two years. Call the top 5 commercial accounts — not to poach, but to verify relationship depth. Ask: 'How long have you worked with [company]? Would you continue under new ownership?' One lost major account can destroy SDE.

Legal diligence

• Litigation search — pending lawsuits, mechanic's liens, tax liens.
• Employment agreements — non-competes for key employees.
• Commercial lease assignment — landlord approval required?
• Environmental — especially for auto repair, pest control chemical storage.
• UCC filings — any equipment liens not disclosed.

The DD timeline

Standard exclusivity period: 45–60 days. Week 1–2: document collection and QoE kickoff. Week 3–4: site visits, employee interviews, customer calls. Week 5–6: QoE draft, issue list to seller, negotiation of purchase price adjustment. Week 7–8: final QoE, clear to close. Do not skip steps because the seller pressures speed.

When to walk away

Walk if: SDE is more than 20% below represented after normalization, any single customer exceeds 30% of revenue without a long-term contract, key technician gives notice during DD, or seller refuses access to bank statements. There are always more deals. The one that blows up in DD would have blown up in year one.

DD data room checklist

Request these documents in week one — delay here kills timelines. Three years tax returns and P&Ls, trailing 12-month bank statements, customer list with revenue by account, employee roster with compensation, equipment list with age and lien status, insurance certificates, license copies, commercial lease, major vendor contracts, and litigation search results.

Post-DD purchase price adjustment

If QoE reveals SDE 15% below representation, negotiate: (a) price reduction proportional to SDE shortfall, (b) seller note forgiveness tied to performance, or (c) escrow holdback for 12 months. Document every issue in a DD findings memo — it's your negotiation leverage and your post-close integration checklist.

Environmental and regulatory DD for trades

Pest control: chemical storage permits and EPA records. HVAC: refrigerant handling logs and Section 608 certifications. Auto-related trades: used oil disposal and underground tank surveys. Budget $3K–$8K for phase one environmental if any red flags appear in preliminary review.

Employee and labor DD

Review I-9 compliance, workers comp claim history, and any pending DOL complaints. Trades businesses with high workers comp mod rates (above 1.2) have hidden payroll costs that survive the acquisition. Interview the office manager privately — they know where the bodies are buried.

Fleet and equipment verification

Physically verify every truck on the fleet list. Check VIN, mileage, lien status, and maintenance records. Sellers sometimes include sold vehicles or exclude leased units about to be returned. Deferred maintenance on a five-truck fleet can be $40K–$80K in year-one surprise capex.

Management interviews during DD

Interview the dispatcher, lead tech, and bookkeeper separately. Ask: what keeps you here, what would make you leave, what does the owner not know about daily operations. Patterns across three interviews reveal integration risks no spreadsheet will show. Budget half a day on site for these conversations — they're worth more than the QoE report.

Record findings in a DD issue log with severity ratings: critical (walk away), major (price adjustment), minor (post-close fix). Share the log with your attorney and lender early — surprises at week eight kill deals and reputations.

Budget 10% of enterprise value for DD total cost — QoE, legal, environmental, and your time. If DD costs exceed the expected price adjustment, you either overpaid at LOI or found a deal killer early. Both outcomes save money.

Assign one person as DD project manager — fragmented communication between buyer, seller, QoE firm, and attorney is the number one cause of blown timelines.

Request seller's insurance loss runs for three years — claims history predicts future workers comp premiums better than any P&L line item. High claim frequency often indicates safety culture problems that survive the acquisition and raise costs.