M&A Financial Due Diligence (SMBs)
Independent financial due diligence to help buyers and sellers of Canadian small and medium-sized businesses understand key financial risks, earnings sustainability, and transaction considerations.
The objective of financial due diligence is to provide independent, objective financial insights to support informed decision-making, valuation discussions, and transaction structuring.
Financial Due Diligence for Mergers & Acquisitions
Financial due diligence is a critical step in mergers and acquisitions, particularly for small and medium-sized businesses in Canada. It helps buyers and investors understand the financial health, risks, and sustainability of earnings before completing a transaction.
As a Canadian CPA, due diligence typically focuses on:
- Quality of earnings analysis – assessing whether profits are sustainable and recurring
- Revenue and cost structure review – identifying unusual, non-recurring, or discretionary items
- Working capital assessment – evaluating adequacy and identifying reminders for post-closing adjustments
- Tax considerations – reviewing corporate income tax, GST/HST, payroll, and CRA compliance matters
- Financial statement integrity – evaluating accounting policies, estimates, and consistency
- Debt, commitments, and contingencies – identifying off-balance-sheet risks or obligations
For owner-managed businesses, due diligence also considers normalized owner compensation, related-party transactions, and internal controls, which are common in Canadian SMBs.
The objective of financial due diligence is to provide independent, objective financial insights to support informed decision-making, valuation discussions, and transaction structuring.
Buy-Side Financial Due Diligence
For buyers and investors, financial due diligence focuses on understanding the quality of earnings, financial risks, and underlying assumptions behind the target business’s results.
Typical areas of review include:
- Sustainability of revenue and margins
- Normalization of owner compensation and discretionary expenses
- Working capital trends and requirements
- Tax exposures and CRA compliance matters
- Debt, commitments, and contingent liabilities
The objective is to provide independent financial insight to support valuation discussions and transaction planning.
Sell-Side Financial Due Diligence
Sell-side financial due diligence helps business owners prepare for a transaction by identifying financial issues in advance and presenting clear, well-supported financial information to potential buyers.
This may include:
- Identifying and normalizing non-recurring or owner-specific items
- Improving clarity around earnings and cash flows
- Reviewing working capital assumptions
- Highlighting key tax and compliance considerations
Early preparation can help streamline buyer due diligence and support more efficient transaction discussions.
