Brian S. Hoffman, CRPC®- CEPA®
Publish Date: June 25, 2026
Due diligence is where deals slow down, get repriced and sometimes fall apart entirely. Knowing exactly what a buyer is looking for before they come looking is one of the most valuable things you can do for your valuation.
Most advisors think of due diligence as something that happens to them.
A buyer shows up with a list of requests. Documents get pulled together. Questions get answered. And at some point the process concludes and the deal either moves forward or it does not.
That is one way to experience due diligence. It is not the best way.
The advisors who move through due diligence with the most confidence and the least damage to their deal terms are the ones who understood what a buyer was going to look for before the buyer ever asked. Who had the answers ready because they had been building toward them for years rather than assembling them under pressure. Who entered the process with the documentation, the financial records, and the operational clarity that allowed due diligence to confirm the story they had already told rather than reveal a different one.
Due diligence is not an examination you pass or fail. It is a verification process. And the best way to survive it well is to have built a practice that holds up to scrutiny rather than hoping the scrutiny is not too thorough.
Here is what buyers are actually looking for.
The Financial Picture
The financial review is the foundation of any due diligence process. A buyer needs to understand, clearly and completely, what they are actually acquiring from a revenue and profitability standpoint.
They will ask for several years of financial statements, typically three to five years. They want to see the revenue trend over time, not just the most recent year. Consistent or growing revenue tells one story. A recent spike followed by years of flat performance tells a very different one and will generate questions that need clear answers.
They will examine the revenue composition carefully. What percentage is recurring advisory fees versus transactional or commission income. How the revenue is distributed across clients. Whether there are any unusual concentrations, large one-time items, or revenue streams that are not clearly explained by the supporting documentation.
They will look at the expense structure. What does it cost to run this practice and why. Are the expense categories reasonable and consistent with a practice of this size. Are there personal expenses running through the business that will not continue post-transition. Are there any costs that seem disproportionate or that require explanation.
They will calculate the true EBITDA after normalizing for owner compensation and one-time items. This is the number that most directly informs the valuation conversation and the deal structure. Practices where the EBITDA picture is clear and well-supported move through this part of due diligence quickly. Practices where the financials require extensive explanation or where the numbers are hard to reconcile create uncertainty that buyers price into their offers.
The Client Base
After the financials, the client base is what buyers examine most carefully. Because the clients are the asset. The revenue is just the current expression of what those client relationships are worth.
Buyers will look at the full client list with associated revenue, AUM, relationship tenure, and service tier. They are building a picture of the concentration and quality of the client base, the demographics, the tenure distribution, and the revenue stability that the base implies.
They will look closely at the top relationships. How long have the highest revenue clients been with the practice. How are those relationships structured. How much of the relationship is personal to the founder versus embedded in the firm’s service model. These are the relationships that matter most for earnout calculations and the buyer will evaluate their transferability specifically.
They will look at client demographics. The age profile of the client base has direct implications for revenue trajectory. A practice with a younger, accumulating client base is a different investment than one with an older, drawing-down base. Buyers price that difference.
They will look at client agreements. Are the advisory agreements current and signed. Do they accurately reflect the current fee arrangements. Are there any clients operating under informal arrangements that are not documented. Undocumented arrangements introduce uncertainty that buyers discount.
The Operations
Operational due diligence is where many advisors are less prepared than they expect to be.
Buyers want to understand how the practice actually runs without the founder. Not how it could run or how it used to run but how it runs today. What are the documented workflows for standard processes. What technology is in use and how completely is it populated. Who on the team handles what functions and what would happen if the founder were not available for a month.
They will ask to see the service model documentation. How are clients onboarded. How are reviews conducted and scheduled. How does the practice communicate proactively with clients between reviews. How are client requests tracked and resolved.
They will examine the compliance history. Any regulatory actions, client complaints, or compliance issues need to be disclosed and explained. Buyers are not necessarily disqualified by historical compliance issues depending on their nature and resolution, but undisclosed issues discovered during due diligence create a trust problem that is very difficult to recover from.
They will look at the technology stack and the quality of the data within it. A well-populated CRM with complete, current client information is an operational asset. Incomplete or disorganized client data is a liability that the buyer will have to address post-closing and will factor into their offer.
They will look at key contracts. Vendor agreements, office leases, employment agreements with key staff. Any contracts that are coming up for renewal or that contain change of ownership provisions need to be identified and addressed before closing.
The People
If the practice has staff, buyers will evaluate the team as carefully as they evaluate the finances and the clients.
Key person risk is a central question. Are there employees whose departure would meaningfully disrupt operations or client relationships. If so, what are the retention provisions in place and what would it take to keep those people through and beyond the transition.
Employment agreements are reviewed for compensation structures, non-compete provisions, and any obligations that transfer with the business. Buyers want to understand what the people cost, what they are committed to, and what flexibility exists to restructure if needed.
Team capability is assessed informally through the due diligence process. Buyers are forming a judgment about whether the team can operate the practice effectively through the transition and beyond. Staff who are capable, engaged, and not obviously anxious about the ownership change are a positive signal. Staff who appear uncertain, disengaged, or likely to leave create integration risk that buyers account for.
What Surfaces That Advisors Did Not Expect
Having done this work with a number of advisors, there are specific things that come up in due diligence that sellers consistently did not anticipate.
Informal client arrangements that were never documented. Clients who have been with the practice for twenty years under a fee structure that was never updated in a formal agreement. Buyers cannot verify what was agreed to and cannot assume it continues without documentation.
Revenue that is attributable to relationships the founder maintained outside the practice, referral sources, COI relationships, or informal networks that are personal to the founder rather than institutional to the firm. A buyer asks whether that revenue continues without the founder’s personal involvement.
Financial records that are accurate but disorganized. Not fraudulent, just hard to navigate. A buyer who has to spend weeks making sense of the financial history before they can analyze it is a buyer whose confidence in the deal is eroding with every additional request.
Compliance gaps that were never fully resolved. Minor issues that the advisor addressed informally but that were never documented as resolved. These create uncertainty in due diligence even when the underlying issue is not significant.
The Most Useful Thing You Can Do Right Now
If you are thinking about a future sale and you want to understand what due diligence will look like for your practice, the most useful exercise is to conduct your own pre-diligence review.
Pull your financial records for the past three years and ask yourself whether they clearly and completely tell the story of how your practice performed. Pull your client agreements and check whether they are current, signed, and accurate. Look at your operational documentation and ask whether someone could understand how your practice runs from what is written down. Review your compliance history and make sure anything that needed resolution was resolved and documented.
Whatever you find in that exercise is what a buyer will find when they come looking. The difference is that you still have time to address it.
The advisors who move through due diligence with the least friction and the strongest deal terms are the ones who did that exercise early enough to fix what needed fixing before any buyer was ever in the room.
If you want help working through that assessment and understanding what your practice looks like through a buyer’s lens, that is exactly what we are here for.
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Built By Advisors | Brian S. Hoffman, CRPC®, CEPA® www.builtbyadvisors.com | [email protected] | 908.888.0007
Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Gladstone Institutional Advisory, a Registered Investment Advisor. Built By Advisors, Gladstone Institutional Advisory LLC and LPL Financial are separate entities.