Phased Financial Due Diligence — How It Protects Your Deal

What You’ll Learn in This Video: • How to validate financial statements before closing • Why phase-one due diligence matters most • The biggest mistakes buyers make after signing an LOI • How QoE reports uncover overstated EBITDA • What happens during a management meeting • Working capital, customer concentration, and revenue recognition explained • Manufacturing diligence red flags buyers overlook • How to know when to walk away from a deal • Why many acquisition deals fail during diligence Why This Strategy Works for Any Business: A phased due diligence strategy helps buyers reduce risk before investing significant legal and banking costs. This framework works across manufacturing, HVAC, healthcare, home services, industrials, and other lower middle market businesses because every acquisition depends on accurate financials, normalized earnings, and operational transparency. Using phased diligence helps buyers: • Avoid overpaying for inflated EBITDA • Catch accounting and inventory issues early • Improve lender confidence • Create stronger negotiation leverage • Increase certainty of closing Timestamps: 0:00 – Introduction & Webinar Overview 2:01 – Phase One Due Diligence Explained 7:22 – What Happens After LOI 11:51 – Why Management Meetings Matter 15:05 – Phase Two Deep Dive & EBITDA Analysis 20:30 – Due Diligence Checklist & Required Documents 23:38 – Advanced Phase Two Financial Testing 28:20 – What Happens After the QoE Report 31:40 – 90-Day LOI Timeline Explained 35:00 – Why Deals Die During Due Diligence 40:37 – Financial Red Flags Buyers Miss 47:00 – Manufacturing Company Due Diligence 51:36 – Final Thoughts on Phased Due Diligence Step-by-Step Breakdown: Step 1: Validate the Financials Before building projections or negotiating structure, verify the accounting data. Review: • General ledger details • Bank statements • Tax returns • Income statements and balance sheets The goal is to confirm the numbers in the CIM or marketing materials match the accounting system. Step 2: Normalize EBITDA & Identify Risk After validating the baseline numbers, begin analyzing: • Add-backs • Revenue recognition • Customer concentration • Vendor concentration • One-time revenue events like PPP or ERC This helps buyers understand the true earnings power of the business. Step 3: Use Management Meetings to Stress-Test the Deal Meet directly with ownership and accounting teams to understand: • Day-to-day operations • Accounting practices • Inventory controls • Vendor relationships • Customer dependencies This is often where major diligence findings surface. Final Thoughts & Call-to-Action: The goal of due diligence is simple: Make sure the business you’re buying is actually the business you think you’re buying. A strong QoE process can save buyers hundreds of thousands of dollars, prevent bad deals, and give lenders confidence in the transaction. 👍 Like this video if you found it helpful • Subscribe to Brick by Brick: https://blog.oconnelladvisorygroup.co... • A blog helping entrepreneurs and investors build wealth through ownership. 🔗 Are you an Entrepreneur or Investor looking for help with Financial Due Diligence? • Learn how I can help: https://tinyurl.com/5997x6u5 🔗 Learn more about our Business Buying Program • Apply today: https://tinyurl.com/yc4wsst8 📚Stop Climbing. Start Owning. Escape the 9-5. • Grab a copy of my e-book today: https://stan.store/SMBDealGuy/p/get-m... 👽Join the SMBAcqusiitonHub on Redditt • A community of over 100 entrepreneurs to help you Confidently Buy, Sell, and Operate Profitable Small Businesses. Join here:   / smbacquisitionhub   Patrick's Affiliate Recommendations: • Time Tracking Software: https://appsumo.8odi.net/POm6BN • Kit: https://partners.kit.com/3ke2jpnjwcqt • #1 Personal Finance App: https://www.wealthfront.com/c/affilia... • Grow your business through authentic reviews (15% off for 12 months) : https://refer.testimonial.to/patrick-... ------Patrick O'Connell––– Social Media––– LinkedIn:   / patrick-o-connell-3b235177   X: https://x.com/smbdealguy TikTok:   / smbdealguy   Instagram:   / smbdealguy   YouTube:    / @patrick_oconnell