Diligence Questions That Actually Matter For Residential Services

When I run diligence on a residential or commercial services business, the financials are about thirty percent of the work. They are also the first thirty percent everyone else focuses on, which means they are usually clean before I get there. The questions that actually decide whether the deal works are operational, and most acquirers underweight them.

The technician retention question

In residential and commercial services, technicians are the business. Customers do not have a relationship with the company. They have a relationship with the technician who showed up, fixed their problem, and treated their home or office with respect.

I always ask: what is the median tenure of the technician workforce? What was the voluntary attrition rate over the last twenty-four months? What is the spread between the highest and lowest paid technicians at the same skill level? If tenure is short, attrition is rising, or the pay structure is inconsistent, the customer relationships are sitting on a shaky foundation regardless of what the revenue chart shows.

The dispatching and scheduling question

The economic engine of a services business is utilization. How many billable hours per technician per day? How many trips per route? How many no-shows or reschedules in the last quarter? Sellers rarely have these numbers ready, which tells me something. If they cannot answer, the operator running the business has been managing by gut for years, and the operating uplift available is real.

The customer concentration and recurring revenue question

For residential, I want to know what fraction of revenue is recurring (maintenance contracts, service plans, repeat scheduled work) versus one-off jobs. For commercial, I want to know the top ten customers by revenue, the contract terms, the renewal dates, and any concentration concerns.

A commercial services business with sixty percent of its revenue tied to three customers on month-to-month contracts is a different deal than the trailing twelve EBITDA suggests.

The equipment and capex question

Residential and commercial services run on trucks, tools, and replacement equipment. What is the average age of the fleet? When was the last major capex cycle? What is the replacement schedule for the next three years? If the seller has been deferring capex to keep EBITDA looking healthy, the buyer inherits that deferred bill.

What the financials actually show

The financials show what happened. The four questions above tell us whether what happened can keep happening, or whether the business is on borrowed time and the seller is timing their exit.

I would rather walk away from a great-looking P&L than buy into a borrowed-time exit.