You've accepted a Letter of Intent (LOI) and shaken hands on a price. Congratulations! Now comes the real test: Due Diligence (DD).
Due diligence is the intensive 30-to-60-day period where the buyer verifies every claim you made about your agency's finances, operations, and compliance. This phase is notorious for deals falling apart or the buyer renegotiating (re-trading) the price down.
The key to surviving DD is preparation. Here is a breakdown of what buyers will scrutinize and how you can prepare now to ensure a smooth, successful close.
1. Financial Diligence: The Deep Dive into Profitability
This is where the buyer's accountants verify the Adjusted EBITDA you presented. They aren't just looking at the top line; they are looking for sustainability and risk.
What They Scrutinize:
- Adjusted EBITDA Verification: They will cross-reference your P&L statements with tax returns to confirm that all owner add-backs (like personal expenses) are legitimate, non-recurring, and defensible.
- Revenue Concentration: They will demand a breakdown of revenue by payer, referral source, and client. If one referral source accounts for more than 15% of your revenue, they will see that as a major risk.
- Accounts Receivable (A/R) Aging: They will scrutinize your A/R to see how much of the cash you're owed is still outstanding past 90 days. High A/R aging signals poor billing practices and reduces the cash you get at closing.
How to Prepare Now:
- Proactive Cleanup: Finalize and separate all owner-specific expenses before you list the agency.
- Clean Up A/R: Aggressively pursue or write off any receivables older than 120 days. Show the buyer a clean, actively managed billing process.
2. Operational Diligence: Staffing and Client Stability
A buyer wants to know that when you walk away, the business will continue to run without missing a beat. This comes down to your people and your systems.
What They Scrutinize:
- Staff Turnover: They will demand turnover data for both caregivers and administrative staff over the past 12-24 months. High turnover is a massive red flag—it signals operational difficulty and high recruiting costs.
- Non-Owner Dependency: They will focus on your Administrator/Director of Nursing (DON). If your business heavily relies on you for clinical or operational oversight, they will view this as a liability and may require a lengthy transition or escrow funds.
- Client Records and Contract Quality: They will audit a statistically significant number of client files to confirm care is properly authorized and billed. They will also verify the terms and transferability of all payer contracts.
How to Prepare Now:
- Empower Your Team: Delegate key operational tasks now. Ensure your Administrator/DON is ready to lead independently and can articulate the agency's systems to a buyer.
- Organize HR Files: Have complete, audited personnel files for every employee, confirming licenses and required training are current.
3. Legal and Compliance Diligence: The Regulatory Risk
In the home care industry, compliance risk can be a deal-breaker. Buyers need assurance that they are not inheriting regulatory trouble.
What They Scrutinize:
- Licensing and Accreditation: They will verify that all state and local licenses are current and transferable. They will also look for any recent or pending accreditation issues.
- Litigation History: They will review all past and pending legal actions, particularly those related to wage and hour disputes (e.g., unpaid overtime). These are common and highly concerning to buyers.
- Audit History: They will examine the results of any previous payer, state, or federal audits to identify patterns of compliance failure.
How to Prepare Now:
- Review Wage & Hour: Audit your payroll processes today to ensure 100% compliance with federal and state overtime laws for all non-exempt employees.
- Centralize Documents: Create a secure, organized Virtual Data Room (VDR) containing all essential documents (licenses, audits, contracts, board meeting minutes). A well-organized VDR signals that you run a tight ship.
The Takeaway: Preparation is Price Protection
The goal of due diligence is to eliminate surprises. By proactively addressing these scrutiny points before you even list your agency, you build trust and defend your asking price. A messy DD process is the quickest way to see the buyer's initial LOI price shrink.
For a fast, easy way to get an initial snapshot of your agency's value, you can use our simple calculator here:
If you are ready for a deep financial and operational dive that provides an accurate valuation—and even an instant offer to buy your agency—check out the comprehensive tool below.