In my first deal, it only took a few months to realize that the due diligence process, especially mine, left much to be desired.

The pain of missing things the owner knew about and you didn’t discover or discover in time can be a hassle. Especially when pieces of the operation start to fall apart.

Only now that we are here, nearly a year later, can I look back to realize what I should have done and looked at differently when evaluating my deal and terms.

Staffing Tenure The workers I inherited in my company became a problem only shortly after I stepped in. Their work slowed down, They resisted change, and client issues due to quality mistakes, past and present, seemed to be never-ending. Eventually, I cleaned house and reset the staffing situation.

So, what did I miss? Well, that good staff don’t stay long at crappy, misled workplaces. No matter which industry you’re in, this typically rings true. If many staff have only been there for a short period, something is wrong.

When evaluating a company, seeing a roster of tenured and experienced staff is key to understanding your organization’s reputation and the state it has been left in.

For my firm, I made the mistake of accepting the story that most of the staff were new because the previous partner got upset, quit, and convinced the other staff to quit, too. And that these staff could just as easily replace their positions. But that wasn’t true. The staff I adopted didn’t have the appropriate training, professionalism, or skills to succeed or work at the standards I set.

Look for staff who care, feel they are part of the organization and can accelerate, not hinder, your learning journey.

Firm Reputation It was only after having dinner with one of our clients, who has also become a friend, that we realized the firm’s reputation had been damaged.

We had been grappling with the fact that new client referrals had been nearly nonexistent lately, and this meal brought it all together. Folks only refer their friends to an organization that does high-quality work that they would feel good about putting their name and word behind.

That was not the case with the accounting firm I purchased.

After acquiring my firm and talking to the staff, I began to feel that something was wrong. The staff all mentioned that the previous owner had burnt himself out, refused to take phone calls for months, and was eager to get in his RV and leave town ASAP.

The trouble is that reputation is very difficult to assess as a third party, and its impact doesn’t show up in the financials until much later.

To assess a company’s reputation in due diligence, find ways to measure how much the community values and trusts this organization. In my case, tracking monthly referral clients before the deal was closed and noticing this number was dwindling would have been a good indicator to reassess.

New Business Avenues One of the factors that intrigued me about buying the accounting firm was that the owner promised tons of untapped growth, especially in business valuation and consulting.

While the previous owner completed valuations as a small piece of the firm, he thought it could potentially be big enough to support an FTE.

Well, I took his word for it and eventually hired a consultant, who we trained to get their CVA credential. The same employee I had to let go months later after sufficient work failed to materialize.

Looking back, I should have used the previous owner as the one to get this work done and also used him to dig up the new work. I should have also asked why he hadn’t pursued this opportunity himself and to prove that he’d been turning work away if he were too busy.

In due diligence, trust but verify. And let the previous owner prove their claims.

Conclusion- Due Diligence Oversights This article came about from a conversation this week with a fellow searcher who is also looking for an accounting firm to acquire. While these businesses can seem promising, there is a lot that could and will go wrong if the opportunity and risks are not fully understood.

So, from my first year’s experience running an accounting firm, I’ve realized that due diligence is even more important, and I’ve learned what to look for under the hood.

In conclusion, for a business, especially a staffing firm, staffing tenure, firm reputation, and new business avenues all need to thoroughly scrutinized.