News and Insights

Cicadas and Due Diligence Requests…

They are easy to plan for, albeit annoying. You know, often for months if not years, that they’re about to show up. In fact, almost to the day they are predicted to arrive they show up. And boy are they annoying. You thought you knew what to expect too, maybe a few dozen. But not hundreds and even for some, thousands. And wow they are ugly.

If you read the title and thought I was talking about either cicadas or due diligence questions, the answer is “yes…both.”

As I write this article on our patio, it is a beautiful afternoon in Cincinnati…assuming you have headphones on. Despite the sun and warm weather, there is a deafening buzz (caused by cicadas clicking their ribs together for those fortunate not to live in the area). Swarmed around trees and with their shells all over the yard, they have made their presence very much known. It was kind of nice and first, like white noise, but now it’s become annoying.

When you sell your business, there is often a part of the transaction which involves due diligence questions.   In April’s RKCA Insights, we talked about the due diligence process overall. This month we are diving into some of the questions you’ll get asked during diligence. Whether you engage a banker like RKCA or go at it alone, it is my opinion that a buyer will most likely have a lot of questions for you.

In our experience, we have seen initial due diligence questions come in at over 1,000. That is not a typo, and yes I wrote “initial” which means there were more after that. Like the cicadas, as a seller you know these questions are coming. You just don’t know how many and to what depth.

And while you cannot do much to combat cicada swarms (work remote from Florida for a few months is one option at least), you CAN do a lot to combat the swam of due diligence questions.   It is my opinion that these are a few types of questions you’ll get in a due diligence request:

  1. Brood X is coming
    1. You know the medical history form you fill out at the doctors (also why is it always on a clipboard)? Well, it’s a little like that. So start to prepare yourself to recall your business’ medical history. As a former operator of a business, it is my opinion that it’s easy to get heads down and forget what happened 18 (even 8) months ago. Start to take a few hours a week and jot down a timeline of all that happened over the years in your company (the good and the bad).
  2. How many cicadas can you count
    1. It is my opinion that Financials are a significant portion of most due diligence request lists. These often include historic financials of your business, cash flow, balance sheet, income statement, broken down by month. There are also projected financial requests, and often specific questions on numbers that were made available in the Confidential Investment Memorandum (CIM).
  3. How bad is it in Cincinnati vs. Indianapolis?
    1. As you search for the Brood X map to see if your friends to the west have it as bad as you, you need to also be supplying a lot of industry and competitor information in the due diligence requests. And it is my opinion that these are often not softball questions or generalities on the industry. These questions often contain specifics on competitors, especially those with whom you’ve demonstrated head-to-head bidding against (whether you won or lost).
  4. What are these monsters going to do to my landscaping and yard?
    1. I don’t think there’s much you can do to prepare how you operate your yard with the cicadas (wrap the trees I guess). But like your weekly yard work, you’ll get asked a lot of questions about the operations of your business in the due diligence request list. These could include key operating metrics, cost savings initiatives, a description of the company’s overall capacity for growth, where offices and staff are located.

Like the first of the Brood X that showed up early last week, the above is just the beginning. This doesn’t include the other potential sections of due diligence questions containing dozens of specific questions each: Human Resources, Legal, Information Technology, Supplier Information, Customer Information, Debts and Covenants, Tax, Sales and Marketing, Facilities and Equipment, Insurance.

So those are just a few examples. There will be others, like the cicadas, that will randomly pop up throughout the sales process. It is my opinion that these questions can often go right up until close, so you need to be prepared. And while you cannot hire an exterminator to eradicate the cicadas in your yard, you CAN hire a banker to help at least navigate the process. It is my opinion that the right banker will be asking you questions before due diligence to prepare themselves and you for the arrival of questions, and a great banker will help stand in the middle and triage what comes in to lessen the burden on you. The buzzing of questions may still be distracting, but with a banker, they won’t make you want to book the next flight to Florida to work in peace. See you next month.

If you, or someone in your network wants to learn more about what we do, email me at


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