Here are my takeaways about financial due diligence as a former traditional searcher and current self-funded searcher who conducted several financial due diligence processes:
Financial reviews should vary according to deal size, industry type, and nature of revenue/financials. I see this in three ways:
Level 1: Deals under $500k EBITDA: Agreed Upon Scope of Procedures with CPA or advisor (cost up to $10k), recommended for self-funded searchers looking at small deals
Level 2: Deals from $500k-2M EBITDA: Quality of Earnings "Light" by professionalized accounting firm or individual CPA (cost $10-20k), recommended for self-funded searchers
Level 3: Deals over $2M EBITDA: full Quality of Earnings by professionalized accounting firm (cost starts around $35k), recommended for self-funded searchers looking at larger deals, and recommended for all traditional searchers
For deals that are outside the norm (extremely messy/complex financials, government regulations, or other), level up.
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