Lessons from reviewing a few P&Ls in Manufacturing- Due diligence

After reviewing a good number of manufacturing companies, I’ve learned that what’s on the P&L rarely tells the full story. Some of the biggest lessons (and hidden surprises) I’ve come across: Inventory isn’t always an asset. Sometimes it’s full of obsolete parts, slow movers, or scrap that’s been sitting for years. Always do a physical count and check age reports. Legal surprises can hit post-close. Even small claims or pending disputes can turn into big costs later. Make sure any open cases are properly disclosed, and provisioned. EBITDA can lie. Especially when family members are on payroll at below-market salaries or personal expenses are run through the business. Normalize, normalize, normalize. Hidden “owner subsidies.” Some owners cover costs personally (tools, fuel, vendor payments) that vanish from the books but will resurface once you take over. Credit lines aren’t in the P&L. Check outstanding balances, collateral, and covenants , you might inherit debt that doesn’t show up until you dig deeper. Founder dependence. Ask yourself: “If the owner disappeared tomorrow, what would break first?” Hiring a GM or Ops Director could easily be a six-figure adjustment to your model. Customer concentration. One client can make or break you. If 30%+ of revenue is tied to a single customer, find out how loyal they really are. Deferred maintenance. That shiny facility might be hiding 20-year-old compressors or a CNC machine that’s one failure away from downtime. CapEx history will tell you a lot. Labor realities. Persistent overtime, untrained temps, or missing work instructions often point to systemic issues that affect throughput and quality. I used to focus heavily on financials, now I spend just as much time understanding the operations. Because in manufacturing, value isn’t created on spreadsheets, it’s built on the shop floor. What other “gotchas” have you seen pop up in manufacturing due diligence? I’d love to add to this list.