Free checklist · Tradeside Partners

10 Questions Before You Buy a Trades Business

Most searchers walk into a trades deal with an MBA and a QoE report and still miss the things that kill these deals. The financials in the CIM are usually the least interesting documents in the data room.

These are the ten questions we ask before getting serious about any HVAC, plumbing, electrical, landscaping, concrete, or pool company — what each one is for, what a bad answer sounds like, and the document to ask for.

Get the printable two-page version Read: What EBITDA hides in a trades P&L

WIP schedule

Can I see the WIP schedule — and does it tie to the P&L?

Work-in-progress and over/under billings are where trades profits hide and where they get invented. If the seller doesn’t keep a WIP schedule, the margins in the CIM are a guess. If he keeps one and it doesn’t tie, they may be worse than a guess.

Bad answer

“Our accountant handles that at year-end.”

Ask for

WIP schedules at the last two year-ends and the latest month-end, with the balance sheet from the same dates.

Job-cost reports

What do the last twelve months of job-cost reports say — by job?

Company-level margin can look fine while half the jobs lose money and two whales carry the book. You want margin by job, not by year.

Bad answer

“We don’t cost individual jobs, but we know where we stand.”

Ask for

Job-cost reports for every job closed in the trailing twelve months — estimated margin next to actual.

Top-ten customer list

Who do the customers actually call?

If the answer is the seller’s cell phone, you’re not buying a business — you’re buying his phone, and he’s keeping the phone. Ask who has the relationships on the top ten accounts and what happens the Monday after close.

Bad answer

“People around here know me.”

Ask for

The top ten customers, with the person at the company who owns each relationship and how long they’ve had it.

Revenue by customer

What’s the real customer concentration?

One GC, one property manager, or one municipality over 20–25% of revenue changes the price and the structure. Check it by customer and by relationship — three “different” customers can be one guy who changed jobs twice.

Bad answer

“We’ve worked with them for years, they’re not going anywhere.”

Ask for

Revenue by customer for three years, with the decision-maker at each account noted.

Payroll register

Which techs can’t I afford to lose, and what are they paid?

Key-tech flight is the trades version of key-man risk, and it’s worse, because the customers follow the tech. Get names, tenure, wages against market, and whether anyone holds the license the company operates under.

Bad answer

“The guys are loyal.”

Ask for

The payroll register with tenure, wage, and licenses held, by person.

License records

Whose license is the company operating on?

In a lot of states the license that lets the company pull permits belongs to a person, not the business. If that person is the seller or a 62-year-old field super, you have a problem with a clock on it.

Bad answer

“That’s never been an issue.”

Ask for

Every license the company works under, whose name is on each one, and what that person plans to do after closing.

Backlog report

What does the backlog really look like?

Backlog is only worth what it’s priced at. Signed contracts at last year’s material prices are a liability wearing a revenue costume. Ask for the backlog list with contract price, cost-to-complete, and margin remaining.

Bad answer

“We’ve got a year of work sold.”

Ask for

The backlog list with contract price, cost to complete, margin remaining, the date each contract was signed, and whether it has an escalation clause.

Fixed asset ledger

What’s on the fleet and equipment list — owned, leased, or borrowed?

Trucks and iron are the balance sheet in this industry. Get the list with year, hours/miles, owned vs. leased, and what’s titled to the seller personally. The difference between the CIM’s “well-maintained fleet” and reality is often six figures in year-one capex.

Bad answer

“Everything runs.”

Ask for

The fleet and equipment list — year, hours or miles, owned or leased, and whose name is on each title.

Surety & insurance file

What happens to bonding and insurance when the owner changes?

Bonding capacity is underwritten on the owner’s history and balance sheet — it does not automatically transfer to yours. Same conversation for the workers’ comp mod and liability rates. If the business needs bonds, talk to a surety before the LOI, not after.

Bad answer

“Our bonding agent is a friend, it’ll be fine.”

Ask for

A letter from the surety showing current bonding capacity, three years of loss runs, and the current workers’ comp experience mod.

Closing statement

Why is the working-capital peg set where it’s set?

The peg decides whether you buy a company or an empty bank account with trucks. In trades deals it has to account for over/under billings, retainage, and seasonality — a “12-month average” peg on a seasonal business is a gift to whoever understood the seasonality better.

Bad answer

“We’ll figure that out in the APA.”

Ask for

Month-end balance sheets for the last 24 months — receivables, retainage, over/under billings, and payables by month.

What to do with the answers

Two or three bad answers doesn’t mean walk.

It means the price and structure need to change, and you need to know that before the LOI, not after the quality-of-earnings bill.

That first read is what we do. A Deal Screen is a 48-hour review of the CIM and financials — red flags, valuation sanity, the ten questions to send this specific seller, and a straight go/no-go. Flat $1,250, back within 48 hours of getting the documents.

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Take it into your next seller call.

The same ten questions on two printable pages, ready to mark up across the table from a seller.

We send the checklist and a short note when something worth reading comes up. Nothing else.