Painting contractor due diligence

A buyer under a letter of intent is no longer asking whether the business looks good. The question is whether it is what the seller says it is. For a painting contractor, ask what inventory and fixed assets there are, and look closely at unpaid obligations, contracts that may not transfer and work done years ago. This guide lists the documents to request, the searches to run and what each finding means. It is general information, and a lawyer and an accountant should run the actual checks.

Revenue and jobs

Match the seller’s financial statements to bank deposits, invoices and tax filings. Ask for a job list by customer for the last few seasons, with open quotes and signed contracts. Compare what the owner says is booked with the contracts that exist. Check how the business bills and collects: progress invoices, holdbacks owed to it and anything outstanding for long periods. A mismatch between the job list and the deposits is a finding to investigate, not to explain away.

Workers’ compensation and payroll

In Ontario, WSIB says that if you buy a business’s assets you should get a purchase certificate, which confirms WSIB coverage and no outstanding debts, and that WSIB may hold the purchaser liable for the vendor’s amounts up to the date of sale without a valid one. It also says a certificate is valid for 30 days from the date of issue. Where the seller’s customers are general contractors, ask whether they obtained clearances, since WSIB’s construction policy says a principal who directly retains a contractor to perform construction work must obtain one, except where a householder retains a contractor for exempt home renovation work only. WorkSafeBC publishes a clearance letter process in British Columbia; ask which board applies in other provinces. Ask for payroll remittance records too, and read the CRA’s page on remitting payroll deductions for how and when remittances are made.

Liens on equipment and vehicles

Ontario’s Personal Property Security Registration system lets you register a security interest or search for a lien on personal property through Access Now, and the Personal Property Security Act governs registration and unperfected interests. The Act provides for searches by individual or business debtor name and by motor vehicle identification number, so search the seller’s legal name and the identification numbers of its vans. Outside Ontario, ask your lawyer which provincial registry applies. Our guides on running a registry search and checking for liens explain what a search can and cannot show.

Contracts, leases and insurance

Read every repaint or property-management contract for assignment, notice and termination terms. Ask whether the other party must consent to a change of owner. Read the shop or storage lease, the vehicle leases and the insurance policies, including claims history. If the business operates in Quebec, check the licence holder repertory published by the Régie du bâtiment du Québec for the contractor you are buying. If it is a franchise, read the agreement and request written confirmation from the franchisor on defaults and transfer terms.

Crew classification and employment records

Ask whether the business uses a mix of employees, subcontractors and day labour. Ask for the contracts or agreements behind each arrangement, and check how each worker is treated for payroll and workers’ compensation. The CRA publishes guidance on whether a worker is an employee or self-employed, and a lawyer can tell you whether the seller’s treatment holds up. Ask your lawyer who would bear the cost if a worker were reclassified after closing, and settle that in the purchase agreement. Also ask for any pending complaints, claims or inspection orders.

Records of older-building work

Ask for any written protocol the business uses on older buildings, training records for the crew and job files showing what was found and how it was handled. The registered sources we cite do not set out the hazardous-materials rules for painting work, so ask a lawyer or occupational health adviser which federal and provincial rules apply where the business works. Absence of records is a finding even when no incident is reported.

• A WSIB or other workers’ compensation balance the seller cannot clear or explain.
• A registered lien on vans or equipment that the seller did not disclose.
• Repaint contracts that bar assignment, or a counterparty who will not consent.
• Job records that do not match the bank deposits.
• No records for older-building work, with a crew that cannot describe how it was handled.