How Can Due Diligence Findings Affect Acquisition Finance?
Due Diligence Findings can change the earnings, cash requirement and transaction structure supporting acquisition finance, so material changes need to reach your finance adviser before you rely on an earlier funding position.
For an Australian accounting-practice buyer, Stage 5 tests the assumptions behind the purchase. The finance discussion should develop with that evidence, including findings that improve the position and matters that remain unresolved.
An earlier indication of funding support reflects the information discussed at that time. If that information changes, ask what needs to be reassessed rather than assuming the same position still applies.
The short answer
Report material findings when they emerge; do not wait for the final review report.
Separate changes to sustainable earnings from changes to the cash needed.
Update the price, payment obligations, buyer contribution and settlement timetable together.
Explain the evidence, proposed response and unresolved matters.
Keep the buyer’s decision separate from the lender’s credit assessment.
Which Due Diligence Findings matter to finance?
Focus on findings that change repayment capacity, the amount or purpose of funding, the proposed structure, or the information supporting the application. A minor administrative issue may need a follow-up without changing the funding position; an uncertain major client relationship may require prompt discussion.
business.gov.au describes due diligence as reviewing financial records, operations and legal documents to identify acquisition risks. For an accounting practice, translate each material finding into its effect under your ownership and the action required before proceeding.
How can revised earnings affect the assessment?
Revenue that includes an unusual assignment, unsupported add-backs or a departing client may require a revised earnings case. Replacing the vendor’s work or retaining key staff at higher remuneration can also change ongoing costs.
Review the evidence behind normalised EBITDA and show which adjustments have changed. Distinguish verified current earnings from future fee increases or integration savings that still require implementation.
NAB’s published application guidance explains that financial performance helps it assess repayment capacity, and that projections or recent management information may be requested in some cases. This is one lender’s guidance, not a universal document list or an approval rule. The applicable assessment depends on the lender and transaction.
A lower earnings figure does not automatically establish a particular borrowing limit or rejection. It does mean the earlier repayment assumptions may need to be revisited with supporting information.
Can the funding requirement rise without a price increase?
Yes. Due diligence may reveal a longer collection cycle, unreliable debtor receipts, prepaid work still to complete or transition expenditure omitted from the original budget. A practice can require more cash even when the headline purchase price stays the same.
Working capital until client receipts cover operating payments.
Recruitment, temporary staffing and vendor handover costs.
Software transfer, migration and overlapping subscriptions.
Lease-related payments and relocation expenditure.
Professional fees and other transaction costs.
Separate one-off expenditure, ongoing costs and payment timing. Do not assume every item can be included in the acquisition loan; ask how each requirement may be funded and what cash you must retain.
What if the price or payment structure changes?
Send the revised commercial position, not just the new headline price. Explain the amount payable at settlement, later payments, buyer contribution and any conditions affecting those payments. A price reduction may reduce the settlement requirement while leaving the underlying earnings concern unresolved.
If vendor finance or deferred consideration is introduced, identify repayment dates, interest if applicable, security proposals and retention conditions. Those obligations may affect cash flow and the proposed lending structure. Acceptance must be checked for the particular lender; vendor finance is not an automatic substitute for buyer equity.
Have your solicitor document the agreed terms. Your finance adviser needs the same current transaction description so the funding review and legal documents remain aligned.
What should you send your finance adviser?
Use a short change summary linked to the underlying evidence. It should make the difference from the earlier position clear:
Finding: what has been established, and what remains uncertain?
Evidence: which records or adviser conclusions support it?
Impact: what changes in earnings, cash, price, obligations or timing?
Response: what will be investigated, negotiated or addressed?
Documents: which forecast, funding schedule or deal terms have been updated?
Keep version dates on forecasts and transaction summaries. Where findings depend on client or staff information, agree an appropriate disclosure process and provide only the information needed for the assessment.
Finance preparation and due diligence may overlap. Clearly identify outstanding matters rather than presenting an incomplete review as finished. If settlement timing changes, ask what it means for the application or existing conditions; do not assume an extension is available.
Illustrative example: the price stays the same
Assume a buyer’s original forecast excluded $40,000 a year needed to replace part of the vendor’s technical work. The review also identifies $30,000 of one-off migration and transition expenditure. These figures are illustrative, not lending thresholds.
The first finding changes ongoing operating earnings. The second changes the cash needed around settlement. Report them separately, update the forecast and funding schedule, and discuss the proposed response. The lender’s outcome depends on the complete transaction and buyer position.
Frequently asked questions
Should I wait until due diligence is complete to report a change?
Report material changes as they arise. Explain what is verified and what still needs investigation so the finance adviser can identify the next information required.
Does loan approval mean the practice is a sound purchase?
No. Lender assessment serves a different purpose from buyer due diligence. Approval does not establish that the price, client retention assumptions or operating plan are appropriate for you.
Can a stronger due-diligence result help the finance discussion?
It may provide better support for the assumptions presented, such as verified recurring revenue or documented transition arrangements. It does not guarantee approval or a particular loan structure.
What if findings emerge after an application or approval?
Tell your finance adviser promptly and ask what requires updating or confirmation with the lender. Do not rely on an earlier application or approval without addressing material changes.
Does the funding case match the purchase now?
Before proceeding, compare the verified operating assumptions, current deal terms and revised cash requirement with the acquisition funding pathway. The finance case should describe the transaction you intend to complete. Your own decision should also account for unresolved risks, even if lending is available.
Considering Buying an Accounting Practice?
Fairlane Finance can help you understand how material review findings may change your acquisition funding pathway.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
