Financial statements explain what the company recorded.
Commercial due diligence examines why customers buy, whether demand is durable, how the company competes, and whether the growth plan is credible.
The purpose is not to produce a large market report. It is to test the assumptions that support the acquisition case.
Understand the customer
Start with basic questions:
- Who buys?
- What problem is being solved?
- How important is the product or service?
- Who makes the decision?
- How long does the purchase take?
- What causes a customer to leave?
- What alternatives exist?
Management’s answers should be tested against customer behavior and available data.
Analyze historical sales
Review:
- revenue by customer;
- market;
- product;
- salesperson;
- channel;
- contract type;
- new versus existing customers;
- price and volume;
- lost customers;
- lost opportunities.
Growth concentrated in one customer, one salesperson, or one temporary market condition may not be repeatable.
Test the pipeline
A sales pipeline should be examined opportunity by opportunity where material.
Assess:
- qualification;
- customer need;
- budget;
- decision process;
- competition;
- expected close date;
- probability;
- required delivery capacity.
A pipeline is a management tool, not proof of future revenue.
Review pricing power
Determine:
- how prices are set;
- discount authority;
- historical price changes;
- customer response;
- competitor pricing;
- contractual restrictions;
- cost inflation;
- customer profitability.
A company with strong demand but weak pricing control may not convert growth into value.
Assess customer concentration and retention
Review:
- top customers;
- contract terms;
- renewal history;
- churn;
- margin;
- payment behavior;
- relationship ownership;
- exposure to common industries or economic factors.
Customer interviews may provide valuable evidence when conducted appropriately and with confidentiality controls.
Test the market size
Market-size claims should be tied to the company’s actual product, customer, price point, and route to market.
A large global market is not automatically available to a company with limited distribution, local regulation, or a narrow customer use case.
Evaluate the growth plan
For each major growth initiative, ask:
- What evidence supports demand?
- Who owns execution?
- What investment is required?
- What operating capacity is needed?
- What could prevent delivery?
- When should results appear?
- What is the downside case?
Commercial due diligence should distinguish a real operating opportunity from a presentation built around general market optimism.