Financial due diligence
Part of buying a business well.
Diligence is one stage of buying a business well, and it is a stage worth doing properly. Nick and his team reconcile the numbers to BAS lodgements, bank deposits and the general ledger, then tell you what the business actually earns once you are the one running it.
Why a finance broker does this
A lender is going to rebuild these earnings whatever you do.
Every commercial credit team takes the vendor’s figures apart and puts them back together its own way. It is cheaper, and considerably less painful, to find what they will find before they find it.
That is why we run this rather than referring it out. We arrange the finance on these deals, so the earnings that come out of the diligence are the earnings that go into the submission. One set of numbers, built once, from source documents. Most brokers cannot offer it and most firms that do diligence never see the credit side, which is the gap this sits in.
It also saves everybody a round trip. Your accountant is asked for documents once rather than three times, and the questions a credit team would have sent back in week six get answered in week one.
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 First Look is $295. Full diligence starts at $2,500. Against a six or seven figure price, it is the cheapest line in the transaction.
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.
Service levels
Most buyers rely on the vendor’s profit and loss statement and a conversation, which is not diligence. You get the answer before you commit, not after, and the same evidenced earnings case flows straight into the finance file when you are ready to fund the purchase.
Level 1: Financial verification
3–5 business daysFor straightforward acquisitions, early-stage assessment, or where a buyer needs 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
- Red flag memorandum with the questions to put to the vendor
Level 2: Scoped due diligence
2–3 weeksThe standard engagement for an owner-managed business acquisition. Everything in Level 1, plus:
- Adjusted EBITDA normalisation bridge, with every adjustment evidenced
- Working capital analysis and 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
- Written findings report with recommendations on price, structure and contract protections
Level 3: Full earnings analysis
3–5 weeksWhere the transaction is material, a lender requires it, or a vendor wants sell-side preparation. Everything in Level 2, plus:
- Source-document sampling and proof-of-cash testing
- Monthly analysis across 24–36 months, including seasonality
- Detailed maintenance capital expenditure assessment
- Sensitivity and downside scenario modelling
- Formal report prepared for reliance by the buyer and a nominated lender
Which level do I need?
Level 1
You want a fast read on the numbers before committing to a full process.
Level 2
You are buying an owner-managed business. This is the standard engagement, and most buyers land here.
Level 3
The deal is material, a lender needs a report it can rely on, or a vendor is preparing for sale.
Fees
Fixed fees by combined transaction value
| Combined transaction value | Level 1 · Verification | Level 2 · Scoped DD | Level 3 · Full analysis | Level 2, share of the deal |
|---|---|---|---|---|
| Under $1,000,000 | $2,500 ($2,750 inc) | $4,500 ($4,950 inc) | Not offered | 0.45% |
| $1,000,000 – $3,000,000 | $3,500 ($3,850 inc) | $7,000 ($7,700 inc) | $11,000 ($12,100 inc) | 0.23% |
| $3,000,000 – $6,000,000 | $4,500 ($4,950 inc) | $9,500 ($10,450 inc) | $15,000 ($16,500 inc) | 0.16% |
| $6,000,000 – $10,000,000 | $7,500 ($8,250 inc) | $17,500 ($19,250 inc) | $27,500 ($30,250 inc) | 0.18% |
| Above $10,000,000 | Quoted | Quoted | Quoted | – |
Under $1,000,000
- Level 1 · Verification
- $2,500 ($2,750 inc)
- Level 2 · Scoped DD
- $4,500 ($4,950 inc)
- Level 3 · Full analysis
- Not offered
- Level 2, share of the deal
- 0.45%
$1,000,000 – $3,000,000
- Level 1 · Verification
- $3,500 ($3,850 inc)
- Level 2 · Scoped DD
- $7,000 ($7,700 inc)
- Level 3 · Full analysis
- $11,000 ($12,100 inc)
- Level 2, share of the deal
- 0.23%
$3,000,000 – $6,000,000
- Level 1 · Verification
- $4,500 ($4,950 inc)
- Level 2 · Scoped DD
- $9,500 ($10,450 inc)
- Level 3 · Full analysis
- $15,000 ($16,500 inc)
- Level 2, share of the deal
- 0.16%
$6,000,000 – $10,000,000
- Level 1 · Verification
- $7,500 ($8,250 inc)
- Level 2 · Scoped DD
- $17,500 ($19,250 inc)
- Level 3 · Full analysis
- $27,500 ($30,250 inc)
- Level 2, share of the deal
- 0.18%
Above $10,000,000
- Level 1 · Verification
- Quoted
- Level 2 · Scoped DD
- Quoted
- Level 3 · Full analysis
- Quoted
- Level 2, share of the deal
- –
Fees are shown excluding GST, with the GST-inclusive figure beside them. GST applies at 10%. The share column is Level 2 against a transaction at the top of that band, which is the smallest share in it. A buyer at the bottom of a band is paying a larger share: Level 2 on a $1,500,000 purchase is $7,000, or 0.47%.
Modifiers
- Additional and out-of-scope work: $295 per hour, and only with your prior written approval.
- Multi-entity groups: add $1,500 per additional trading entity beyond the first two.
- Expedited delivery (under 10 business days for Level 2, under 15 for Level 3): add 30%.
- Second target: where a buyer engages us on an alternative target within 90 days of a first engagement, the second is charged at 75% of schedule.
The full fee schedule, including finance documents and business plans, is on the pricing page.
Terms of engagement
- 50% on engagement, 50% on delivery of the report.
- Fees are not contingent on settlement, finance approval, or the conclusion reached.
- If the analysis recommends against the transaction, the fee is unchanged.
- Fixed fees assume the standard information request is met; material gaps are notified before extra time is incurred.
- The fee is fixed once we have seen the financials. If the file turns out to be materially different from what was scoped, we tell you before any extra time is incurred, and additional work is charged at $295 per hour with your written approval.
- Either party may terminate; completed work is charged pro rata.
What is included
- All analysis, document review and reconciliation work
- Direct liaison with the vendor's accountant and your solicitor
- Written report and supporting workbook
- One debrief call, and a second on request
- Follow-up questions for 30 days after delivery
What is not included
- Independent property valuation, building, pest or environmental reports
- Legal due diligence, contract review or drafting
- Formal business valuation
- Taxation advice
- Audit or any assurance opinion
- Post-settlement integration or bookkeeping
If you need any of these, we will say so and point you to a qualified specialist. Several of them are things we will actively recommend you obtain.
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.
It works
A 50 year old business. 100% financed.
The target was a 50 year old business in a prestige Sydney suburb. We ran the financial due diligence from a credit perspective and built the cashflow forecasts, working alongside the client’s accountant and the vendor’s accountant so every number agreed. The client secured the business, 100% financed through a major bank at competitive rates and structure.
The full case study · All case studies
Details anonymised. Outcomes depend on individual circumstances and lender criteria.
Two ways this can work.
Referred to us for finance? You are in the right place either way. Either we arrange it, or we prepare the file for whoever does.
Have us arrange the finance
We build the analysis, write the submission and take it to the lenders who will actually do the deal, across 40+ of them. One team from the first set of figures to settlement, and one team holding the covenants after it.
Start a finance enquiryAlready 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, and we do not take the lodgement on that engagement.
See the finance documentsWant a straight read on your deal?
Book a free call with Nick. Bring the numbers you have, and we will tell you the right service level and the fixed fee. No obligation.
Want to see one before you commit?
Four pages from a real serviceability workbook, client name removed and the figures left exactly as they were. Including the stress test the facility fails.
Before you engage anyone
The two questions worth asking first.
Why not just ask the broker?
Two different jobs, and most deals need both. Your broker's job is to get the funding across the line on the best terms available. Ours is to test what the business earns before anyone applies for anything.
The two sit either side of the same deal on purpose: a broker is paid when the finance settles, and our fee is the same whichever way the numbers land. That is what lets us hand you a verdict rather than a case.
Why not just ask the accountant?
Your accountant knows the history better than anyone and is your adviser through the deal. What a lender wants is the earnings tested at arm's length, by someone who is not on either side of it.
Both jobs get done, and every tax question we hit goes straight back to them.
Common questions
No. Due diligence is a commercial review, not an audit, and it does not provide assurance over financial statements. What we do is rebuild the earnings picture from source documents like bank statements, BAS lodgements and the general ledger, then tell you what the business actually earns once an arm's-length owner is running it. We do not provide audit or assurance services.
Level 1 gives you a fast read before you commit to a full process. Level 2 is the standard engagement for buying an owner-managed business. Level 3 is for bigger transactions, deals where a lender needs a report they can rely on, or vendors preparing for sale. Not sure? Send the financials through and we will confirm the right level and a fixed fee within two business days. That assessment is free.
For scoping, just the target's last three years of financial statements and the contract of sale. Once you engage us, we send a standard information request covering BAS lodgements, bank statements, the general ledger, payroll records and the lease. Fixed fees assume that request is met. If the records are patchy, we tell you before any extra time is spent.
You get the finding, the evidence behind it, and a clear recommendation. That might be a price adjustment, a change to the deal structure, a contract protection to demand, or advice not to proceed at all. The fee stays the same either way. You are paying for the answer, not for a particular answer.
Yes. We do the whole job: rebuild the earnings from source documents, write the submission, and take it to the lenders who will actually do the deal. Credit assistance is provided by Nicholas Clunes, 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 there; it is not payable on every transaction and the amount is not ascertainable when we quote you. The due diligence fee is fixed either way and is payable whatever the analysis concludes, including when it concludes you should walk. You are also free to take the analysis and use any broker you like.
Often, yes, and the strongest engagements are ones we work together. The practical questions are time and position: deal analysis runs on the vendor's timetable, usually through your accountant's busiest weeks, and lenders read an arm's-length report differently from one written by the adviser who also prepares your accounts. We run the transaction analysis, your accountant brings the history, and our report flags exactly which tax and legal questions need their input.