What you're testing in diligence is not just the documents — it's the health of the financial operation that produced them. Incomplete responses, missing years, and casual dismissals of standard requests flag deeper control issues. So the list below does two jobs at once: it gathers the evidence you need to verify the numbers, and it stress-tests how the agency actually runs. Six categories cover the financial picture.
§ 01 · How to run itA data room, not an inbox.
Send the request formally with your diligence schedule so the seller knows exactly what "complete" looks like — you're asking for the baseline, not nice-to-haves. Establish a real data room on a shared drive, organized by category with clear file names and version control. Then build a simple tracker — document name, due date, received date, completeness, notes — and use it as your dashboard. Document every gap: if reconciliations "don't exist," that's a data-quality red flag, because they're standard hygiene for any agency on a management system; if carrier contracts aren't on file, that's a compliance gap. Each absence is a hypothesis to test, not a detail to wave through.
§ 02 · The six categoriesWhat to request, and what it reveals.
| Category | Key documents | What it reveals |
|---|---|---|
| Profit & loss | 3 yrs CPA statements; monthly P&Ls + balance sheets (36–60 mo); general ledger; owner-comp breakdown; add-back schedule | The valuation baseline and the real normalized EBITDA |
| Tax | 3 yrs federal + state returns; payroll-tax filings; 1099s; audit history | The gap between tax-reported and deal-claimed earnings |
| Bank & cash | 12 mo operating + trust bank statements; month-end reconciliations; loan and debt-service schedules | Whether profit converts to cash; the debt you'd assume |
| Carrier & commission | Appointment list; 24 mo commission statements; carrier contracts; contingency schedules; loss-ratio scorecards | Revenue verification, transferability, and contingency volatility |
| Premium trust | 24 mo three-way reconciliations; monthly trust-ratio calculations; AMS ledger export; handling policy | Fiduciary solvency — the binary deal-killer |
| Receivables & payables | A/R aging report; bad-debt write-off schedule (3 yrs) | Collection discipline and phantom revenue |
A few items carry outsized weight. Monthly granularity beats annual summaries — 36 to 60 months of statements expose the seasonality, concentration spikes, and one-time bumps that annual figures hide. The owner-compensation breakdown is the largest add-back in any deal, so you need salary separated from replacement-manager cost and personal perks separated from business necessities, each backed by documentation. And expect to challenge 30–50% of claimed add-backs once your accountant sees the support.
The premium-trust category is non-negotiable and binary. Request 24 months of signed three-way reconciliations and monthly trust-ratio calculations — the ratio must hold at or above 1.0. A ratio below 1.0 means the agency is out of trust, which is a deal-ender, not a price negotiation. Reconcile it before anything else earns your attention.
§ 03 · Reading the responseThe signal beneath the documents.
The carrier and commission category is where reported revenue gets verified against hard truth — 24 months of commission statements reconcile to the P&L, and any gap flags data-entry errors or aggressive revenue recognition. Appointment agreements tell you which carrier relationships transfer and which carry change-of-control clauses; a deteriorating loss-ratio scorecard or a threatened appointment is a material risk you price in. The contingency schedules let you normalize that volatile income to a three-year average rather than accepting one fat year.
On the receivables side, the A/R aging report sorts balances by age, and anything past 90 days is typically treated as bad debt and excluded from the valuation; a bloated aging report signals weak collection discipline and inflated reported revenue. Throughout, the meta-signal matters as much as the documents: a seller who produces a clean, organized package quickly is showing you operational maturity, while one who improvises is showing you the opposite. You are buying the operation that produced these files — read both the numbers and the way they arrived.
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Terminology on this shelf
- Data room
- A formal, organized document repository on a shared drive — the professional standard for a diligence submission.
- Three-way reconciliation
- Matching bank, checkbook, and management-system ledger balances to verify trust-account integrity.
- Trust ratio
- Trust cash plus receivables over carrier payables. Must hold at or above 1.0 — a binary solvency gate.
- Add-back schedule
- The seller's list of personal and one-time expenses claimed back into EBITDA — expect to challenge 30–50%.
- A/R aging report
- Receivables bucketed by age; balances past 90 days are typically excluded from valuation.
- Contingency schedule
- The history and formulas behind volatile carrier profit-sharing, normalized to a three-year average.