Financial Due Diligence Checklist

Here are the Questions Private Credit LP’s should be asking! Below is the due diligence request list prepared by a C-Level executive with significant investing experience (an existing LP) before committing to increase his allocation to RE Real Estate Debt Fund II, LP (the private credit fund managed by RD Advisors).  The team, led by Juan Carlos, covered this in a four hour meeting in our Boston office. The List:  “ --Loan listing with amounts, maturities, rates, other key terms, current loan status --Loans in delinquent status, including further analysis on how these are addressed (extensions, revised terms, foreclosures) --Writeoffs (if any) --Detailed cash flow statement, including analysis of inflows and outflow timing.   --If there's a grading system or risk assessment system for entering into loans, further insight into that would be great --Would like to go through the 2-3 worst deals the fund has ever done, to understand what happened and what the learning points were. --Any sort of concentration risk (multiple or high dollar loans with one or few counterparties) --Amount of repeat loan business vs. new loan business --Planned or possible expansion areas being considered outside of Boston --How RD thinks about expansion, and prioritizing where to invest additional funds --How does RD think about the risk of loss if the Boston market turns, and what the overall portfolio risk would be if there's a 20% decline in the Boston real estate market.  Worst case scenario planning.” And this list is in addition to our regular monthly and quarterly reporting (including full investor presentations/webinars)! Personally I think it’s a great list that LP’s should add to their own due diligence process.  What items are on the top of other private credit investors list? Were there key items you would add? By no means investment advice. #PrivateCredit #InvestorEducation #AlternativeInvestments Paul Shannon, Scott Trench, Ian Ippolito , Ignacio Ramirez Moreno, CFA, Chris Fitzpatrick, George Webb, CF2®, Matthew Burk, Tod Trabocco, CFA Aleksey Chernobelskiy , Leyla Kunimoto John Imbriglia

I spent several years underwriting real estate private credit funds. Here are three red flags that you should avoid when investing in these funds: 🚨- Lack of experience. If the management team and support staff do not have experience as real estate lenders, you should understand that they are unlikely to be capable of understanding the nuances of the risks involved in becoming a lender. 🚨🚨- Lack of discipline. If the PPM is overly broad, the investment thesis is not consistent, and you are seeing random asset types in tertiary markets, run, do not walk to the exit. 🚨🚨🚨- Poor governance. If the fund has difficulty producing historical data, does not plan to (or pass) an audit, makes loans to insiders, or does not use a third party fund administrator, these should be signs that your investment is likely at higher risk. Here are 3 things you should always ask to see: 1️⃣ - Audited financial statements 2️⃣ - Current loan tape 3️⃣ - Loan Case Studies If these cannot be produced in a timely and professional manner, consider it an additional red flag. Anything you would add Paul Shannon, Bradley Laddusaw, CPA, or Leyla Kunimoto?

I am gearing up to buy my 2nd historic building in Kansas City. What does my initial Due Diligence checklist look like? Here you go: Environmental: - Phase I Environmental Site Assessment - Phase II ESA (if needed) - Asbestos Survey - Radon Testing Zoning, Title, and Legal: - Zoning Report / Confirmation - ALTA Survey - Title Report / Commitment - Historical Designation Status - Meet with EDC about tax abatements & incentives Structural & Building Condition: - Property Condition Assessment (PCA) - Structural Engineer Report - Roof Inspection Utilities & Systems: - HVAC, Electrical, Plumbing Assessments - Fire Protection System Review - Septic/Water Testing Financial & Code Compliance: - Code Compliance Check with City - Cost Estimate for Renovations (Preliminary) - Insurance Risk Assessment - Appraisal There is a lot that goes into buying a building, especially one that is old. This is just a preliminary checklist, obviously there will be more to dive into but this is a great start. #development #construction #kansascity #CRE #realestate

Investors see 50+ deals a year - here's what makes them write checks: Last week an investor told me something that stopped me cold… "Eugene… you're the first developer who showed me a real feasibility study. Everyone else just sends pro formas and pretty pictures." Here's what separates amateurs from funded deals: The Due Diligence Package Investors Actually Trust: What most developers show up with: • Zillow comps • A contractor estimate • "Trust me, bro" spreadsheets What professional developers show up with: 1. Third-Party Market Analysis → Not your realtor's opinion. → Real reports from: CoStar (commercial) Local appraisers (with 90-day comps) Absorption + vacancy analysis for your micro-market Cost: $2K–5K Value: Proves demand exists — beyond your opinion. 2. Independent Cost Validation → Multiple contractor bids → Plus a third-party cost estimator (we use RS Means + local data) Investors love this: → You're not guessing at $300/sq ft. 3. Environmental Phase I Report → Always. No exceptions. Catches things like: Wetland restrictions Soil contamination Stormwater issues that kill density Cost: $3K–8K Alternative cost: $500K+ in delays or site remediation 4. Utility Infrastructure Report → Critical for suburban and rural deals Real costs investors need to see: Water + sewer connections Electrical service upgrades Road access improvements Pro tip: These "small" costs can add $50K–200K fast. 5. Regulatory Risk Assessment → Permitting timeline reality check based on: Local jurisdiction history Similar project approvals Political climate for your project type Investors hate surprises more than they hate high costs. 6. Financial Stress Testing → Show three scenarios: Base case (your projection) Conservative case (15% cost increase, 6-month delay) Disaster case (bad absorption, rising rates, or both) Proves you've planned for turbulence — not just blue skies. → This isn't paperwork. → This is how deals get funded. Show up with real due diligence… You instantly stand out from 90% of developers. ---- Thinking about a project? DM me "Checklist" — I'll show you how GIS helps developers build due diligence packages that impress banks, investors, and partners.

Here’s the reality: most investors think they’re thorough. They’re not. They do a surface-level scan, miss key details, and get blindsided by problems they ‘couldn’t have foreseen.’ In reality? They just weren’t obsessive enough. The best real estate deals aren’t made when you sign the contract. They’re made in the trenches, digging through financials, property histories, and lease agreements. This is where the detail-obsessed thrive. Here's how it works: 1. Numbers never lie - unless you don't check them Most investors look at rent rolls, nod approvingly, and move on. That’s amateur hour. The obsessive investor verifies every lease, cross-checks payment histories, and calls past tenants. Hidden delinquencies? Misrepresented rents? Lease clauses that can screw you later? Catch them before they catch you. 2. Walking the property? Crawl it instead. Most investors do a walkthrough. The smart ones crawl. Get under the house. Check for moisture, rot, foundation issues. Climb into the attic. Look for leaks, bad wiring, and insulation problems. Behind walls and under floors is where the real surprises hide. Miss these, and your ‘great deal’ becomes a financial sinkhole. 3. The people factor; read between the lines A seller who’s too eager? A property manager who won’t stop talking? These are signals. Dig deeper. Are they hiding a problem? Is the local market about to shift? The devil isn’t just in the details, it’s in the body language, the offhand comments, the inconsistencies in their story. Your obsession with detail will serve you well. 4. Worst-case scenario planning Most investors run numbers based on best-case projections. Big mistake. The obsessive investor runs best, worst, and most likely scenarios. They don’t just hope it works out. They underwrite to ensure it does. 5. Their proforma is a sales pitch - yours is the truth Never trust a seller’s spreadsheet. Their numbers are designed to sell you, not protect you. Build your own proforma from scratch. Verify every expense and crosscheck and stress test every assumption. If the deal still holds up? It’s real. If not? You just dodged a bullet. How to leverage OCD-level detail in due diligence ↳ Double-check everything - then check again. ↳ Verify sources independently - don’t just trust the broker or seller. ↳ Trust, but verify - assume everyone has a bias and act accordingly. ↳ Be ‘that guy’ - ask the dumb questions, insist on seeing original documents. The bottom line? What some call 'overanalyzing' is actually protecting your investment. In real estate, the obsessive win. The careless pay their tuition in losses. Which are you? *** Want to get access to some properly underwritten opportunities? Subscribe to my newsletter and be among the first to know. Link at the top of my profile Adam Gower Ph.D.

In M&A, most sellers assume diligence begins 𝙖𝙛𝙩𝙚𝙧 the LOI is signed… But by that point, the clock is already ticking, exclusivity is locked in, and any surprises (real or perceived) can become deal-breakers or issues that chip away at price. The truth is, buyers walk in with a very specific checklist. They’re not just verifying financials, they’re looking for risks, for inconsistencies, and sometimes, for anything that gives them leverage, or even a reason to walk away. Here’s the good news: if you’re the seller, you can beat them to it. It starts with understanding what buyers are looking for: 🔎 HR and compliance gaps 🔎 Messy or incomplete contracts 🔎 Unclear financial adjustments or owner add-backs 🔎 Potential unresolved tax liabilities 🔎 Customer concentration risk 🔎 Unresolved litigation or contingent liabilities 🔎 Cap table confusion or unresolved equity promises These aren’t just technical details, they’re signals to the buyer, and in an M&A process, well-prepared diligence wins deals. What can sellers do? ✅ Assemble your own diligence checklist before buyers do. A good M&A advisor will help you do this during the preparation phase ✅ Have your financials reviewed or normalized by a third-party QofE provider ✅ Clean up contracts, org charts, cap tables, and compliance documentation ✅ Identify “gray area” risks early and prepare thoughtful explanations ✅ Think like a buyer, then remove any friction. Make it easy to buy your company. In diligence, the goal isn’t perfection, it’s being able to give the buyer confidence. When a buyer feels like you’ve done your homework, the dynamic shifts. You’re no longer defending surprises. You’re leading the deal with transparency and strengthening the value you’ve worked so hard to build. #mergersandacquisitions #Investmentbanking #MandA #exitplanning

The best due diligence questions aren’t about the past. They’re about repeatability. It’s easy to get lost in historicals during diligence. Revenue CAGR, EBITDA margins, year-over-year growth. All important, but only part of the story. In private equity, what really matters is this: Can this business generate the same (or better) results again, without heroic effort? That’s why the smartest diligence processes shift focus from what happened to whether it can happen again. And that means asking questions around repeatability and scalability: Are lead generation channels reliable and cost-effective? Look at CAC, payback period, and lead source concentration. Is the sales engine process-driven or people-dependent? Dig into win rates by rep, pipeline velocity, and quota attainment. Are margins structurally sound or propped up by one-off deals? Analyze gross margin variance by product line and vendor dependency. Is growth supported by systems or stitched together by manual effort? Assess tech stack utilization, automation percentage, and ops headcount vs. revenue. The goal of diligence isn’t just to confirm past performance. It’s to uncover whether the performance is durable. Because in PE, value is created when you can scale what’s working, without breaking what isn’t.

If you’re buying commercial real estate you CANNOT half ass due diligence. This is my starting DD checklist: 1. Hire an attorney with real estate experience 2. Have the attorney get started with title work, zoning, and entity formation (GP/LP) 3. Schedule Phase I (maybe Phase II) environmental study 4. Schedule property condition report 5. Request current leases, tax information, utilities, service contracts, rent collection, etc. 6. Request surveys, architectural drawings, inspections, warranties, insurance, etc. 7. Hire a tax consultant to understand reassessment implications (also call assessor) 8. Hire zoning experts to confirm allowable uses 9. Supply/demand analysis, market studies, new supply, lease comps, etc. 10. Discuss current tenants uses and non-conforming status with the building inspector 11. Hire a debt broker to shop the deal for the best rates and terms 12. Create a "teaser" for prospective investors (small deck with high-level info) 13. Continually update and pressure test model with new information 14. Create a "Confidential Business Overview" to raise capital from investors There’s often several more items depending on the deal— these are minimum requirements. You need to be able to answer questions, with backup, for potential investors and yourself to know if a deal is worth the risk.

I’ve cleaned up books for 50+ business owners across the US and Canada. And every time we look into the books of a new client We find mistakes that have been sitting there untouched for months, sometimes even years. Here are 4 mistakes I’ve seen most often (And what every business owner should do instead) 1. Invoices getting marked as paid, but the payment never hits your bank register.  Make sure this account is cleared every month. Match deposits with bank feeds weekly. 2. Clearing accounts used as a dumping ground for uncategorized transactions Use a monthly close checklist to review and clear these accounts. 3. Booking loan payments entirely as expenses Break every loan payment into two parts.  Only interest hits your P&L. The principal should reduce your loan balance. 4. Counting sales tax as revenue Always separate taxable sales from tax collected. Map your sales tax liability correctly, so you’re not overstating income or underreporting liabilities. PS: Have you ever caught any of these mistakes in your books?

Last October, a seasoned investor lost $1.1 million in a single afternoon. Why? Because he skipped proper financial due diligence to "seize the opportunity”. Then he came to us. Here’s how we helped: 1️⃣ Quality of Earnings Analysis We looked past profits. Isolated recurring revenue from one-time gains. Uncovered accounting adjustments hiding real performance. 2️⃣ Balance Sheet Verification We verified assets. Identified off-balance sheet liabilities. Validated working capital to support the deal value. 3️⃣ Cash Flow Assessment We traced historical cash flow. Tested capex needs and future projections. Stress-tested numbers against market realities. 4️⃣ Tax Structure Review We flagged hidden tax risks. Checked compliance gaps. Found restructuring opportunities to optimize post-deal outcomes. 5️⃣ Financial Control Evaluation We assessed internal controls. Reviewed reporting systems. Spotted governance risks that could derail integration. The results?  ✅ ROI increased by 34% ✅ Deal risk reduced by 78% ✅ 92% of surprises eliminated post-acquisition. The investor later admitted: "I thought speed was my edge. Now I know—it’s only smart if you're rushing in the right direction." Strong due diligence tells the story behind the numbers. Don't let hidden risks sink your next deal. I help investors uncover the truth, fast and thoroughly. DM "Diligence" to protect your next transaction. #financialduediligence #finance #accounting