Before you wire funds on a restoration acquisition, verify these 20 critical items — from insurance receivables aging to TPA contract transferability and IICRC certification status.
Acquiring a fire and water damage restoration business offers recession-resistant cash flow driven by non-discretionary insurance claims, but the industry's complexity demands disciplined due diligence. Revenue quality is difficult to assess at face value given insurance write-offs, supplement disputes, and variable job sizes. TPA program relationships — the lifeblood of consistent lead flow — may be non-transferable. Technicians hold valuable IICRC certifications that walk out the door if retention isn't secured. This checklist covers the five domains every buyer must investigate before closing: financial quality, insurance and receivables, TPA and carrier relationships, workforce and certifications, and equipment and operations. Use it alongside a restoration-experienced M&A advisor to avoid overpaying for a business whose value evaporates post-close.
Restoration financials are frequently distorted by insurance timing, supplement disputes, and owner add-backs. Verify true earnings power before accepting any valuation.
Request 3 years of P&L statements, tax returns, and job-level revenue detail by loss type.
Confirms reported EBITDA and reveals margin differences between water, fire, and mold jobs.
Red flag: Tax returns show materially lower revenue than P&L statements, indicating unreported or inflated billing.
Analyze gross margin by job type: water mitigation, fire restoration, mold remediation, and reconstruction.
Margin varies significantly by loss type; fire and mold carry higher risk and cost than water mitigation.
Red flag: Blended margins above 55% without explanation may indicate undisclosed subcontractor offsets or aggressive billing.
Review owner compensation, vehicle perks, family payroll, and one-time losses for EBITDA normalization.
Owner-operators routinely run personal expenses through the business, inflating apparent profitability.
Red flag: Add-backs exceed 25% of stated EBITDA without clear, documented justification for each line item.
Confirm revenue recognition policy — accrual vs. cash basis — and verify it matches job completion timing.
Cash-basis accounting inflates current-year revenue when insurance payments lag job completion by 90+ days.
Red flag: Business uses cash-basis accounting with no job-cost system, making true profitability unverifiable.
Slow insurance reimbursement cycles and unresolved supplement disputes represent the single largest hidden liability in restoration acquisitions.
Obtain a full accounts receivable aging schedule segmented by carrier, job, and days outstanding.
Receivables over 90 days have significantly lower collection probability and may require purchase price adjustment.
Red flag: More than 20% of total AR is over 90 days old with no active collection or supplement resolution in progress.
Review historical insurance collection rates and average days-to-payment by carrier over the past 24 months.
Collection rate below 85% signals systemic billing disputes, documentation gaps, or weak adjuster relationships.
Red flag: Seller cannot produce historical collection rate data or disputes the existence of written-off receivables.
Identify all open supplement disputes and quantify total dollars under negotiation with insurance carriers.
Unresolved supplements become the buyer's problem post-close and may never be collected.
Red flag: Outstanding supplement disputes exceed $150K with no documentation trail or adjuster correspondence to support claims.
Confirm working capital structure and assess whether deal includes or excludes AR in purchase price.
Restoration businesses require 60–120 days of working capital; AR exclusion creates immediate post-close cash strain.
Red flag: Seller insists on excluding AR from deal while including all corresponding job liabilities and subcontractor obligations.
Preferred vendor and TPA program participation drives the majority of inbound job volume. Verify transferability before attributing any revenue value to these relationships.
Obtain copies of all active TPA program agreements, preferred vendor contracts, and program enrollment status.
TPA contracts with carriers like State Farm, Allstate, and Farmers represent structured, recurring lead flow.
Red flag: TPA agreements include change-of-ownership termination clauses with no carrier consent or assignment provisions.
Identify all key insurance adjuster and agent relationships and determine whether they are owner-held or team-held.
Owner-dependent relationships are at high attrition risk post-acquisition, reducing referral volume immediately.
Red flag: Owner is the sole point of contact for all adjuster relationships with no introduction plan to project managers.
Verify participation in third-party administrator networks (Contractor Connection, Alacrity, Sedgwick) and scope of work terms.
TPA network pricing is often below market; understanding margin impact on TPA jobs is essential for true profitability assessment.
Red flag: More than 70% of revenue flows through a single TPA network, creating dangerous concentration risk post-close.
Confirm no active carrier performance reviews, probationary status, or pending program removal actions.
Carriers can remove preferred vendors for complaint volumes, slow response times, or documentation deficiencies.
Red flag: Seller discloses or due diligence reveals open carrier performance investigations or recent program suspension notices.
Restoration labor is scarce, certification-dependent, and highly mobile. Verify headcount, credentials, and retention posture before pricing any staffing assumptions into your model.
Audit all technician and project manager IICRC certifications — WRT, ASD, FSRT, AMRT — and confirm current status.
Lapsed certifications create liability exposure, TPA disqualification risk, and retraining costs for a buyer.
Red flag: More than 30% of field technicians have lapsed or missing IICRC certifications not disclosed during initial marketing.
Review employee tenure, compensation structure, and whether any key staff have received retention conversations.
Experienced project managers and lead technicians are the operational backbone — their departure collapses capacity.
Red flag: Two or more senior project managers are actively interviewing elsewhere or have indicated departure intent during the sale.
Assess subcontractor dependency ratio — what percentage of restoration work is performed by subs vs. W-2 employees.
High sub dependency reduces margin predictability, creates quality control risk, and complicates TPA compliance.
Red flag: More than 50% of field labor is subcontracted with no documented sub agreements or consistent quality documentation.
Confirm non-solicitation and non-compete agreements exist for key employees and assess enforceability by state.
A departing project manager who takes adjuster relationships to a competitor can destroy acquired revenue within 90 days.
Red flag: No non-solicitation agreements exist for any employees, and seller has no plan to execute them pre-close.
Restoration businesses are capital-intensive. Aging equipment and deferred maintenance represent real post-close cash obligations that must be priced into the deal.
Conduct a full equipment inventory audit covering air movers, dehumidifiers, extractors, and drying systems with age and condition.
Drying equipment is the core production asset; aging inventory means immediate replacement capital post-close.
Red flag: Average equipment age exceeds 7 years with no maintenance records and seller cannot provide replacement cost estimates.
Review vehicle fleet condition, ownership vs. lease structure, and outstanding maintenance or repair obligations.
A restoration company's fleet is its response capability; deferred maintenance creates operational and liability risk.
Red flag: Fleet inspection reveals multiple vehicles with deferred repairs exceeding $50K aggregate with no reserve disclosure.
Evaluate job management software, estimating platform (Xactimate, Symbility), and documentation workflow completeness.
Carrier-compliant documentation and Xactimate proficiency directly impact supplement approval rates and billing speed.
Red flag: Business uses informal or manual job tracking with no Xactimate integration, creating billing inefficiency and compliance gaps.
Confirm current general liability, commercial auto, pollution liability, and workers' compensation insurance coverage.
Mold and water restoration creates environmental and bodily injury exposure requiring specialty coverage a buyer must maintain.
Red flag: Pollution liability coverage is absent or lapsed, exposing the buyer to uninsured mold and sewage remediation claims.
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Start by requesting copies of all active TPA program agreements — Contractor Connection, Alacrity, Sedgwick, and any direct carrier preferred vendor contracts — and have your attorney review each for change-of-ownership provisions. Many TPA agreements require carrier consent to assign, and some terminate automatically upon a change of control. Contact TPA program managers directly during diligence to understand their re-enrollment process and timeline. Structure your earnout or seller note to include TPA relationship retention as a milestone, giving the seller financial incentive to facilitate introductions and transition communications with carrier contacts pre-close.
Independent restoration businesses in the lower middle market typically transact at 3.5x to 5.5x adjusted EBITDA. Businesses commanding the upper end of that range have active TPA program participation with major carriers, IICRC-certified teams operating independently of the owner, diversified revenue across water, fire, and mold loss types, and clean job-cost documentation. Businesses with owner-dependent relationships, aging receivables, or heavy subcontractor dependency trade closer to 3.5x. Strategic acquirers such as national franchise systems may pay a modest premium for rapid close and territory conversion, while SBA-financed deals by individual buyers cluster around 4x–4.5x to meet debt service coverage requirements.
This is one of the most negotiated deal terms in restoration acquisitions. Most buyers prefer to exclude AR from the purchase price and have the seller retain and collect outstanding balances, with a clean working capital peg established at close. However, if AR is included, insist on a thorough aging schedule review, apply a collection rate discount to balances over 60 days, and write off or exclude anything over 120 days. Supplement disputes in progress should be valued conservatively — typically 50 cents on the dollar — given the inherent uncertainty of carrier negotiations. Ensure the purchase agreement includes AR indemnification provisions if any pre-close receivables are included in the deal.
Begin by identifying the two or three project managers and lead technicians who drive the most revenue-generating relationships with adjusters and carry the highest IICRC certification levels. Review their tenure, current compensation relative to market, and whether they are on formal employment agreements. Have a confidential retention conversation with the seller's knowledge before close — offer stay bonuses structured to vest 12–24 months post-close, funded either by the buyer directly or as a seller obligation. Confirm that non-solicitation agreements are in place or can be executed at close. In markets with severe technician scarcity, price a 10–15% staffing contingency into your operating model for the first year post-acquisition.
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