What to Expect During Due Diligence After Signing an LOI

First off, congrats! If you’ve signed a Letter of Intent (LOI), you’ve already made it further than most roofing business owners ever do. Getting here means you’ve built something valuable, had serious conversations with a buyer, and agreed on the high-level terms of a deal. But now comes the real work: due diligence.

This is the deep dive, the time between signing an LOI and closing the deal, where buyers verify everything about your business to ensure it’s as strong as it appears. Due diligence typically takes 60-90 days and involves multiple workstreams, but if your books are clean and your records are well-organized, the process moves much smoother. Here’s what to expect:

1. Quality of Earnings (QoE) Review

This is one of the most critical steps in the process. A third-party accounting firm (hired by the buyer) will analyze your financials to confirm revenue, job profitability, margins, and cash flow. Since the purchase price was based on your reported financials, the goal here isn’t to change valuation unless something is significantly off. Instead, this review ensures everything checks out.

Buyers will be looking at:

• Revenue trends – Are sales growing, stable, or declining?

• Customer concentration – Is too much revenue coming from a single client or source?

• Job costing & margins – Are projects priced consistently and profitably?

• Cash flow – How reliable is the inflow and outflow of money?

• Adjustments to EBITDA – Are there any personal expenses or one-time costs that need to be accounted for?

If your books are clean, this process should be fairly straightforward. But if records are messy, missing, or inconsistent, it can cause delays and raise concerns.

2. Tax Review

No buyer wants to inherit unexpected tax liabilities. A tax review ensures that your business is compliant with state and federal tax laws, and that there aren’t any surprises waiting after the sale. This includes:

• Payroll taxes, sales taxes, and income taxes

• Any outstanding liabilities or audits

• Proper classification of employees vs. subcontractors

• State-specific tax compliance (especially if you operate in multiple states)

If you’ve stayed on top of your tax obligations, this step is more of a formality. But if there are unresolved issues, they’ll need to be addressed before closing.

3. Insurance & Benefits Review

Buyers will assess your company’s insurance history, including:

• Workers’ comp claims – Have there been excessive or costly claims?

• General liability & commercial auto policies – Are the right coverages in place?

• Health and retirement benefits – Are they competitive, and how do they impact costs?

If you’ve had major workers’ comp claims or high insurance costs, this won’t necessarily kill a deal, but it could impact how a buyer approaches risk management after the sale.

4. Legal Review

A thorough legal review ensures that the business is operating compliantly and that the buyer isn’t taking on unknown risks. This includes:

• Corporate structure & ownership – Who owns what, and are there any outstanding ownership disputes?

• Licensing & permits – Is everything up to date? Are there any compliance risks?

• Contracts & agreements – Includes vendor contracts, leases, supplier agreements, and warranties.

• Pending or past legal issues – Lawsuits, disputes, or regulatory concerns will be examined closely.

Most roofing companies operate with a mix of handshake deals and written agreements. The more contracts you have in writing, the easier this step will be.

5. Business Partnership & Leadership Planning

If you’re planning to stay on after the sale, due diligence is when the details of your new role get finalized. Buyers will want to ensure:

• You’re aligned on how you’ll run the business post-sale.

• Key employees are incentivized to stay.

• The transition plan is clear and minimizes disruption.

This is also when discussions about growth strategies and operational improvements come into play. The goal is to ensure the business remains successful long after the sale.

Final Thoughts

Due diligence isn’t about picking apart your business, it’s about making sure both sides are making a smart decision. If you’ve been transparent from the start and have clean financials, the process should be relatively smooth. The best thing you can do? Be prepared.

• Keep your financials organized.

• Have contracts and agreements in place.

• Address any outstanding legal or tax issues before starting the process.

Selling your roofing company is a big step, and due diligence is just one part of the journey. A strong business deserves a strong deal, and the better prepared you are, the faster you’ll get to the finish line.

If you’re thinking about selling, I can help you understand your company’s value and see if now’s the right time to consider a partnership or exit. Take advantage of our free business valuation tool to get a better idea of what your business is worth and discuss your options.