PLUMBING · Q1 2026 · 35-item pre-LOI diligence checklist · 8 Critical · 11 High · 16 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-PLB-2026Q1 · Sample window 2025-05 → 2026-04 (trailing 12 months)CRITICAL 01 · Verify master plumber license is W-2 and attached to the entity · FUNDABILITY pillarCRITICAL 02 · Segment trailing revenue: service agreements / scheduled service / emergency calls · EARNINGS QUALITY pillarCRITICAL 03 · Add back owner-plumber at full master-with-permit-authority replacement cost · EARNINGS QUALITY pillarLIVE · Pre-LOI verifications a sophisticated buyer should clear before signing an LOIPLUMBING · Q1 2026 · 35-item pre-LOI diligence checklist · 8 Critical · 11 High · 16 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-PLB-2026Q1 · Sample window 2025-05 → 2026-04 (trailing 12 months)CRITICAL 01 · Verify master plumber license is W-2 and attached to the entity · FUNDABILITY pillarCRITICAL 02 · Segment trailing revenue: service agreements / scheduled service / emergency calls · EARNINGS QUALITY pillarCRITICAL 03 · Add back owner-plumber at full master-with-permit-authority replacement cost · EARNINGS QUALITY pillarLIVE · Pre-LOI verifications a sophisticated buyer should clear before signing an LOI
Q1 2026 Plumbing Pre-LOI Diligence
The complete plumbing pre-LOI diligence checklist.
Every Plumbing acquisition verification a sophisticated buyer should clear before signing a letter of intent — grouped by category, tagged by pillar and severity, anchored to the Q1 2026 Plumbing Atlas.
critical Will cause SBA fall-through or a deal break if missed. Verify before LOI.
high Post-LOI repricing risk. Verify in the diligence period or accept the haircut.
medium Diligence-period verification. Will not kill the deal but compounds working-capital and post-close risk.
01
Category 01 · 2 items
License & regulatory continuity
Verify master plumber license is W-2 and attached to the entity
Why:Sole-owner master license appeared in 44% of deals and is the dominant Q1 SBA fall-through pattern; SBA underwriters are treating it as failed license continuity before reaching DSCR. Permit-pull authority is lost at close without W-2 master replacement.
Check:State licensing portal lookup · payroll register showing the master as a W-2 employee · entity-named licenses on file · documented permit-pull succession plan · multi-state coverage if applicable.
critical
Fundability
Audit master and journeyman license matrix vs service area
Why:Multi-state operations (e.g. Tri-State NYC; Cincinnati covering OH/KY/IN) require separate state masters; coverage gaps are an immediate Transferability finding.
Check:Service-area zip-code map vs state license coverage · master license expiration dates · CE hours documented per state · reciprocity agreements relied on · NYC / DC / county-level requirements.
high
Transferability
02
Category 02 · 2 items
Financial normalization
Segment trailing revenue: service agreements / scheduled service / emergency calls
Why:Emergency revenue presented as steady-state recurring SDE in 49% of deals; emergency volume is weather- and event-driven with 15%–40% variance. Single trailing-12 line items cannot be priced — 3-year segmentation is the lender-grade ask.
Check:3-year revenue by service type (service agreements, scheduled service, emergency, repipe, specialty) · seasonal trend by month · weather-event correlation · CRM tagging compliance · variance analysis vs 3-year average.
critical
Earnings Quality
Add back owner-plumber at full master-with-permit-authority replacement cost
Why:Owner-plumber normalization is the top SBA fall-through cause. Owners performing master-level field work, permit-pulling, and commercial account management cannot be replaced at a $65K–$75K bookkeeper add-back. Replacement cost runs $85K–$130K fully loaded with permit authority.
Check:Owner time-allocation interview · master-with-permit-authority market wage in metro · whether a non-owner W-2 master exists · commercial account management hours separate from field hours · permit-pull administrative time.
critical
Earnings Quality
03
Category 03 · 2 items
Fleet, equipment & capex
Capitalize fleet replacement reserve at $15K–$25K per vehicle for 7+ year fleets
Why:Fleet capex reserve was absent from deal structure in 58% of transactions. Service vans + diagnostic / jetting / video equipment require 6–8 year replacement cycles; deferred capex flows to forward gross margin compression.
Check:Vehicle list with VIN, year, mileage, lien status · diagnostic / jetting / video equipment age and condition · replacement schedule · trailing 36-month repair spend per vehicle · capex reserve memo.
critical
Earnings Quality
Inspect specialty tooling: video inspection, jetting, CIPP, locator
Why:Sewer scope cameras (RIDGID SeeSnake), jetting trailers (US Jetting, Spartan), CIPP relining equipment, and pipe locators carry forward capex if missing or obsolete; specialty scope revenue depends on tooling.
Check:Tool list per shop / van · calibration certificates · CIPP equipment age and condition · jetting trailer maintenance log · sewer scope footage / recording capability.
medium
Transferability
04
Category 04 · 2 items
Recurring revenue verification
Document service agreement recurring share above 35%
Why:Service agreement recurring share above 35% is the primary upper-band Pricing pillar signal; fewer than 20% of plumbing businesses reviewed met this threshold. Documented agreement programs (drain maintenance, water heater plans, commercial contracts) are required.
Check:Active service agreement count and revenue · agreement type breakdown (drain / water heater / commercial / annual residential) · auto-renew rate · trailing 24-month cohort retention · ServiceTitan / Housecall Pro export.
critical
Pricing
Cohort-test service agreement retention monthly for 24 months
Why:Headline retention rates can mask churn timing; lenders increasingly require cohort data not blended averages.
Check:Quarterly cohort retention table for trailing 24 months · agreement start dates · CRM export of contract status by month · churn-reason categorization.
high
Pricing
05
Category 05 · 1 item
Pipeline & specialty capability
Pull EPA LCRI utility-partnership credentials and lead-line specialty capability
Why:EPA Lead and Copper Rule Improvements (10-year mandate, finalized Oct 2024) creates structural demand tailwind through 2034. Utility-partnered contractors with lead-line specialty credentials capture program scope; non-credentialed contractors cannot.
Verify supplier credit terms travel to the new entity
Why:Distributor credit lines (Ferguson, MORSCO/Hajoca, Reece, Winsupply) are personally guaranteed by the seller in many SMB deals; loss of terms post-close compresses working capital.
Check:Supplier statements with payment terms and credit limits · personal guarantee disclosures · written confirmation of post-close terms portability · annual rebate accrual.
high
Transferability
07
Category 07 · 3 items
Compliance & code continuity
Confirm OSHA 29 CFR Subpart P excavation program documentation
Why:OSHA Subpart P (excavation) is a leading citation category in plumbing work involving sewer lines and underground systems; protective system requirements (sloping, shoring, shielding) for trenches over 5 feet deep.
Check:Excavation program documentation · competent-person designation · trench-shield equipment inventory · OSHA 300 log 5 yr · citation history · confined-space entry program.
high
Fundability
Search lien filings, UCC-1s, and litigation history
Why:Mechanic's liens filed against the entity (or filed by the entity) signal commercial collection issues; unreleased UCC-1s on equipment block clean title at close.
Check:Secretary of State UCC-1 search · county-level mechanic's liens · PACER litigation search · state court docket search · water-damage claim history.
medium
Fundability
Identify Davis-Bacon, prevailing-wage, and Buy America exposure
Why:Federally funded jobs (LCRI lead-line, school-district plumbing, military housing) trigger prevailing-wage and Buy America requirements; non-compliance is a payback liability.
Check:Federally funded contract list · certified payroll records · Buy America compliance documentation · DOL audit history.
medium
Fundability
08
Category 08 · 1 item
Customer concentration & mix
Map customer concentration and revenue mix
Why:Commercial accounts above 15% of revenue, or any single customer above 10%, materially alter Earnings Quality; mix shifts within the trailing period must be normalized.
Check:Top 20 customers by trailing-12-month revenue · residential vs commercial split · service vs project vs maintenance mix · multi-year trend.
high
Earnings Quality
09
Category 09 · 1 item
OEM, supplier & extended warranty
Reconcile water heater warranty obligations and accruals
Why:OEM extended warranty programs (Rheem, A.O. Smith, Bradford White, Rinnai) reimburse the dealer at fixed rates; under-accrued labor obligations on the books can flip to liability post-close.
Check:Active extended-warranty register by serial number · OEM reimbursement rate sheet · trailing 24-month warranty claim labor cost · accrual entry on balance sheet.
medium
Earnings Quality
10
Category 10 · 1 item
Labor & technical capacity
Reconcile 1099 contractor labor against subcontractor exposure
Why:Heavy 1099 use can trigger ABC-test or worker-classification audits (esp. CA AB5, NJ, MA) and inflates apparent labor margin while hiding employer tax exposure.
Check:1099-NEC totals 3 yr · per-contractor revenue dependence · scope-of-work agreements · workers comp coverage on 1099 entities.
Why:X-Mod above 1.0 signals injury frequency above industry average and predicts forward premium; plumbing carries class-code risk on excavation, confined-space, and lifting exposure.
Confirm GL, professional liability, and umbrella coverage
Why:Standard GL alone does not cover water-damage liability or new-construction wrap-up requirements; under-insurance flags forward premium increase or buyer-side gap coverage.
Check:Certificates of Insurance · contractors pollution liability rider if applicable · water-damage endorsement · umbrella policy · loss runs 5 yr.
medium
Fundability
Verify surety bonding capacity for commercial / public work
Why:States that license plumbing contractors typically require a surety bond ($5K–$25K); commercial work over a threshold often requires per-project performance bonds.
Check:Active state surety bond · bonding agency relationship · single-project and aggregate capacity · commercial backlog requiring bonds.
medium
Fundability
12
Category 12 · 2 items
Real estate & lease
Read the shop and yard lease for change-of-control
Why:Shop, yard, and signage lease is the operational anchor; landlord assignment provisions and below-market rent (if landlord = seller) are common findings.
Check:Lease assignment / change-of-control clause · related-party indicator if landlord shares ownership · market rent comp · remaining term and option rights.
medium
Transferability
Phase I environmental on owned or controlled real estate
Why:Plumbing operations historically used solvents, lead solder, and underground fuel storage for vehicles; environmental finding can stop SBA financing on real-estate-included deals.
Check:Phase I ESA report (current within 12 months) · UST / AST records · spill or release history · vehicle fueling and waste oil disposal documentation.
medium
Fundability
13
Category 13 · 3 items
Technology & operations
Audit field service management software and data ownership
Why:ServiceTitan, Housecall Pro, FieldEdge contracts often have data-export and termination terms that constrain post-close transitions; loss of historical service history is an Earnings Quality continuity risk.
Check:FSM contract terms · data export rights · monthly active seat count · trailing 12-month uptime / outage log · API access · customer database completeness.
medium
Transferability
Pull callback rate and warranty rework metrics
Why:Callback rate above 8% on installs or 6% on service signals tech-quality issues that materialize as labor cost and reputation drag post-close.
Map online review velocity and reputation footprint
Why:Google review velocity below 1 per month per metro is a demand-generation finding; sudden negative-review clusters predict commercial fall-out.
Check:Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate.
medium
Pricing
14
Category 14 · 1 item
Tax & entity
Review state sales tax nexus and labor/parts taxability
Why:Plumbing sales tax rules vary widely (TX taxes labor on real-property repair; FL exempts most labor; CA partial); errors compound at 4–8.25% of revenue and SBA underwriting flags large unrecorded liability.
Check:Sales tax returns 3 yr per state · taxability matrix by state for labor / parts / agreement · audit notices or assessments.
medium
Fundability
15
Category 15 · 10 items
Japan · Cross-border (J-GAAP & prefectural)
Verify Construction Business Act licensure (建設業許可) — 管工事業 by prefecture
Why:Japanese plumbing contractors require a 管工事業 license issued either by the prefectural governor (single-prefecture) or by MLIT (multi-prefecture). Operating outside the licensed scope or prefecture is a strict-liability finding under the Construction Business Act (建設業法).
Check:管工事業 license certificate · governor- vs minister-issued classification · 一般建設業 vs 特定建設業 (specified, required for subcontracts ≥ ¥45M) · expiration and renewal status · 専任技術者 (technical engineer) on file.
critical
Fundability
Confirm 管工事施工管理技士 (Piping Construction Management Engineer) certification
Why:JP plumbing project management requires 管工事施工管理技士 (1級・2級) certification under MLIT regulation. 1級 is required for 特定建設業 license-holding entities; missing or expired certification voids commercial project management rights.
Check:管工事施工管理技士 certification per technical engineer (1級 / 2級) · expiration and renewal dates · 主任技術者 / 監理技術者 appointment letters · MLIT registration · prefectural audit history.
critical
Transferability
Re-cut financials under J-GAAP goodwill amortization
Why:J-GAAP requires goodwill amortization over up to 20 years (typically 5–10), unlike US GAAP impairment-only treatment. Trailing earnings presented under one regime systematically misstate the other; this is the single largest source of cross-border valuation error.
Check:Audited J-GAAP financial statements (損益計算書 P/L, 貸借対照表 B/S) · goodwill schedule with amortization period · accountant-prepared US-GAAP bridging memo · differences in revenue recognition for installation contracts.
critical
Earnings Quality
Verify consumption tax (消費税) treatment on installation vs maintenance revenue
Why:JP consumption tax sits at 10% standard / 8% reduced rate; plumbing installation and maintenance are typically standard-rate but partial-period revenue and deferred-installation deposits create reconciliation gaps that compound at 10% of revenue.
Check:消費税申告書 (consumption tax returns) 3 yr · installation deposit liability schedule · invoice-system (インボイス制度) qualified invoice issuer registration number · 簡易課税 vs 本則課税 election.
high
Fundability
Pressure-test the long-term employment cost structure
Why:Japan's 終身雇用 (lifetime employment) convention and Article 16 of the Labor Contract Act make termination far harder than at-will US employment. Severance reserves, social insurance employer contributions (社会保険料 ~15% of wages), and statutory retirement pay obligations are often understated on US-style management accounts.
Check:退職金規程 · 退職給付債務 (retirement benefit obligation) calculation · 社会保険・労働保険 contribution rate per employee · 有期 vs 無期 employee mix.
high
Transferability
Map the relationship-banking structure and CoC consent rights
Why:JP SMB acquisitions typically rely on relationship-based regional bank financing (地銀 / 信金) rather than a national SBA-equivalent. Existing main-bank relationships (メインバンク) often hold change-of-control consent rights via loan covenant; loss of the relationship can compress working capital independent of credit metrics.
Check:Main-bank loan agreements with CoC clauses · personal guarantee (個人保証) by selling shareholder · relationship history with regional bank · 信用保証協会 coverage · post-close lender continuation letter.
high
Fundability
Audit Building Standards Act (建築基準法) compliance for installed equipment
Why:Plumbing installations in commercial buildings require 建築設備検査 (Building Equipment Inspection) reports filed every 1–3 years; older installs often predate current code, creating retrofit liability that travels with the customer relationship.
Check:建築設備検査報告書 filings for the trailing 5 years · 給排水設備 / 衛生設備 certifications · code-grandfathering memos for pre-2003 installations.
medium
Transferability
Inspect 商業登記 (commercial registry) and 印鑑証明 (seal certificate)
Why:JP corporate transactions require fresh 履歴事項全部証明書 and 印鑑証明書; outstanding director changes or unfiled capital actions are blocking findings at signing.
Check:法人登記簿謄本 issued within 3 months · representative director seal certificate · outstanding capital subscription receivables · prior M&A or capital actions.
medium
Fundability
Plan APPI-compliant customer-data transfer notification
Why:Japan's APPI (個人情報保護法) requires customers be notified of any transfer of their personal data on M&A and granted opt-out rights; failure invites Personal Information Protection Commission (PPC) scrutiny and customer complaints.
Check:Pre-close APPI privacy-policy review · sample customer-notification letter · post-close notification campaign budget · PPC reporting protocol.
high
Transferability
Verify 水道法 (Water Supply Act) compliance for service-line work
Why:JP water-utility-connected work requires 指定給水装置工事事業者 (Designated Water Supply Equipment Constructor) registration with the local water utility (水道事業者); operating without registration is a strict-liability finding.
Check:指定給水装置工事事業者 registration per utility · 給水装置工事主任技術者 (Chief Technical Engineer) certification · scope of past water-utility-connected work · prefectural water utility audit history.
