May 1, 2026
Buying a restoration company requires financial due diligence (3 years of financials, AR quality, job-level margin analysis), operational due diligence (equipment condition, customer concentration, key employee assessment), legal due diligence (licenses, contracts, litigation history), and cultural due diligence (management team quality and transition risk).
Acquiring a restoration company — whether you’re a PE platform adding an add-on or an independent operator buying market share — is one of the fastest paths to scaled capability and revenue. It’s also one of the fastest ways to inherit someone else’s operational and financial problems at a premium price.
The difference between a great acquisition and a painful one is almost always due diligence discipline. What you discover before signing is what you can negotiate. What you discover after signing is what you absorb.
Request three years of profit and loss statements (monthly preferred, annual minimum), three years of balance sheets, three years of tax returns, current year-to-date P&L, and a current AR aging report. Look for revenue trend, gross margin trend, overhead structure, one-time items, and owner compensation normalization opportunity.
The AR aging report tells you whether the business is actually collecting what it bills. What percentage of AR is 90+ days? Above 15% is a warning sign. Who are the largest open balances and why? What is the historical bad debt rate? Are there disputed invoices?
This is the due diligence step most buyers skip — and where the most significant surprises hide. Request job cost reports for the prior 12 months organized by job type. Calculate actual gross margin by job type and compare to what the seller claims margins are.
Conduct a physical inspection of all drying equipment, request the equipment list with age and replacement costs, review maintenance records, and assess vehicle fleet condition and mileage. Equipment that looks fine in a spreadsheet can be functionally marginal in the field.
What percentage of revenue comes from the top 5 customers? Are any customers personally tied to the seller’s relationships? Do TPA program agreements transfer to the buyer? Customer concentration above 30% in a single account or top 5 accounts above 60% is a risk factor that should affect pricing.
Who are the 3–5 people the business cannot function without? Do they know about the sale? What are their compensation structures? Underpaid key employees are flight risks post-acquisition. Has the seller identified a transition plan for relationships that are owner-held?
Verify current contractor licenses, IICRC certifications, and specialty licenses. Review all TPA program agreements for transferability. Examine commercial account contracts for change-of-control provisions. Pull all pending litigation, OSHA citations from the prior 5 years, insurance claims, and any contractor board complaints.
A quality of earnings (QoE) report is a financial analysis performed by an independent accountant that adjusts reported EBITDA for one-time items, owner compensation normalization, and accounting policy differences to arrive at a sustainable, normalized EBITDA for valuation purposes. QoE reports are standard in PE acquisitions and recommended for any acquisition above $1M.
Typically 30–60 days for a thorough due diligence process. Compressed timelines (under 30 days) increase the risk of missing significant issues. If a seller is pushing for a very fast close, ask why.
The most common surprises: AR that isn’t as collectible as reported, equipment in worse condition than represented, key employees who leave post-announcement, TPA program agreements that don’t transfer cleanly, and undisclosed litigation or regulatory issues.
An earnout is a portion of the acquisition price paid contingent on the business achieving specific performance targets post-sale. It aligns the seller’s incentive with continued business performance during the transition period. Earnout structures range from simple (12-month revenue minimum) to complex (multi-year EBITDA targets with multiple tiers).
Mike McCabe is The Profit Detective — a 36-year restoration industry veteran who built and sold his own restoration company and has advised on restoration business acquisitions and valuations.
Most engagements pay for themselves within the first week.