Commercial or financial due diligence: which questions does the deal need answered?

A buyer is told that a business has durable customers and can grow revenue substantially after acquisition. Financial records can help establish what it has earned, how revenue is recorded and how cash behaves. They cannot, by themselves, demonstrate that customers will accept the proposed price increase or that the addressable market will support the planned expansion. Those questions need different evidence.

Write down the central deal assumptions before selecting a diligence service. Examples include the persistence of a major revenue stream, the ability to enter a new customer segment or the spending needed to maintain service. Assign each assumption to the work that could test it. This is more useful than buying a generic report because the transaction checklist contains the words due diligence.

Commercial and financial diligence often examine some of the same data. The distinction is not simply future versus past. Commercial work uses historical evidence, and financial work can analyze forecasts. The important difference is the question being asked and the investigation the provider agrees to perform.

ICAEW describes commercial due diligence as an objective examination of commercial matters, including a business plan and projections, using market, competitor and customer evidence. Its financial due diligence guidance describes work that improves understanding of financial performance and supports a defined investment or divestment decision. These descriptions help frame a scope, but individual engagements can include different procedures.

For a customer concentration question, financial work might reconcile customer revenue to the accounts, analyze payment history and inspect how margins vary across the customer base. Commercial work might investigate why those customers buy, the alternatives available and evidence about future demand. The findings should inform one another without pretending that one form of evidence establishes everything.

Ask the proposed providers where their work stops. Neither a commercial label nor a financial label automatically includes tax, legal, technical, environmental or other specialist work. Identify the important unanswered questions and assign them deliberately rather than assuming the most expensive proposal must cover them.

Suppose an illustrative business has annual revenue of $10 million and forecasts $12.1 million next year. The plan assumes a 10% price increase and 10% more units: $10 million multiplied by 1.10 and then 1.10 equals $12.1 million. The combined growth is 21%, because the higher price also applies to the additional units.

Financial diligence may examine whether the historical unit and price data agree with recognized revenue, whether discounts or credits are missing, and what the forecast assumes about collections and costs. Commercial diligence may test whether customers would accept the increase, whether competitors offer substitutes and what evidence supports the additional demand. Neither team should silently replace the other's work with an untested management assertion.

Bring the conclusions back into the same model. If customer research weakens the volume assumption, quantify the effect on revenue, contribution and cash using the financial model's defined relationships. If financial analysis reveals that apparent volume growth came from an accounting or reporting change, the commercial team should revise the historical comparison it uses.

For commercial work, ask how the provider will obtain evidence beyond the seller's selected success stories. Discuss the proposed customer population, research method and treatment of missing or contradictory responses. A handful of favorable interviews should not be presented as a statistically representative result unless the method supports that claim.

Agree permissions for customer, supplier or market contact. A transaction can be sensitive, and an interview request may reveal information the parties have not authorized for disclosure. The provider should explain who approves contact, what respondents will be told and how confidential information will be handled. The FTC's guidance on protecting business information supports limiting access and disclosure to the needs of the work.

For financial work, ask how the provider will reconcile its analysis to source records and distinguish recorded results from management adjustments. Request a visible record of unresolved information gaps. A well-designed investigation may leave some assumptions uncertain; a report that simply repeats management's forecast has not necessarily tested the reason for buying the business.

Build a short list of the decisions that could change the transaction. Ask each provider to map its proposed work to those decisions, the evidence it will use and the output it will deliver. This makes exclusions and duplicated work visible before the engagement begins. It also prevents a long generic data request from being mistaken for a relevant investigation.

Review the named team's experience with the particular business model and research method. A provider may understand financial statements but lack the capability to investigate a specialist market, or possess market expertise without the accounting skills needed for the financial analysis. The buyer should know which people perform each part and how their conclusions will be reviewed.

Compare fees after resolving those differences. A narrow exercise may be appropriate when one specific assumption needs testing, while a larger transaction may require coordinated work across several disciplines. There is no useful universal price comparison when the populations, access, deadlines and methods differ.

Commercial evidence may support strong demand while financial analysis reveals that serving it requires more working capital than the plan assumes. Financial results may look stable while customer research identifies a substitute gaining traction. These findings are not necessarily inconsistent. They describe different parts of the business and need to be considered together.

Arrange a joint discussion of the assumptions that materially affect the deal. Ask each provider to distinguish observed evidence, professional interpretation and unresolved uncertainty. Keep management's response visible without letting it overwrite the original finding. Where teams use different customer definitions or periods, reconcile those differences before treating their conclusions as a disagreement.

Determine who updates the investment model and who approves a change to the buyer's case. The advisers' reports inform the decision; the buyer retains responsibility for its own transaction judgment. A forecast scenario should show the effect of the findings rather than merely attach the reports as background reading.

Confirm the intended recipients and any permitted reliance or distribution arrangements before circulating the work. A report commissioned for one party or purpose is not automatically suitable for another. Ask the providers and legal advisers to resolve those terms in the engagement rather than assuming that possession of a PDF settles the issue.

The final investment discussion should identify which commercial assumptions were tested, which financial records supported the analysis and what remains unresolved. It should also explain how the findings changed the proposed plan or terms. That gives the buyer a reasoned basis for the next decision, with a clear understanding of what each diligence assignment actually established.