Commercial and People Due Diligence: The Two Workstreams Most Buyers Underinvest in — and Live to Regret
Ask most acquisition entrepreneurs what due diligence involves and they will describe a financial process. Three years of accounts. EBITDA normalisation. Working capital analysis. Quality of earnings review. All of that is essential — and our guide on due diligence when buying a business covers it in more detail.
What gets far less attention — and causes far more post-acquisition surprises — is the commercial and people due diligence. These are the workstreams that examine the sustainability of the revenue, the quality of the customer relationships, the competitive position of the business, and the capability and motivation of the people you are about to inherit. Financial due diligence tells you what the business has earned. Commercial and people due diligence tells you whether it will keep earning it.
This post is about those two workstreams — what they involve, why they are systematically underweighted by most buyers, and what the specific questions are that you should be asking before you complete any acquisition.
Why These Workstreams Get Underweighted
The reasons commercial and people due diligence receive less attention than financial due diligence are structural, not accidental.
Financial due diligence is led by accountants who work to a defined methodology. It produces a written report with specific findings. It generates a clear output — the quality of earnings report — that buyers, lenders, and advisers all know how to interpret. It feels rigorous because it is quantitative and documented.
Commercial and people due diligence is harder to systematise. The questions are more qualitative. The answers depend on conversations, observations, and judgements that cannot easily be reduced to a number. There is no standard report format that a buyer can wave at a lender to demonstrate it has been done. And it requires time — not just in reviewing documents, but in meeting people, visiting sites, and making assessments that only emerge through direct interaction.
The result is that most buyers invest heavily in the financial workstream and treat the commercial and people dimensions as secondary — something to assess informally through a few conversations rather than as a structured process in its own right. The acquisitions that produce the most unpleasant post-completion surprises are disproportionately ones where this imbalance was most pronounced.
Commercial Due Diligence: What It Really Involves
Commercial due diligence is the structured assessment of the business model, market position, revenue quality, and customer relationships that underpin the financial performance you are buying. Its purpose is to answer one question with real evidence: will this business continue to generate the revenue and earnings it has historically generated, under new ownership, in the market as it currently exists?
That question has several components, each of which needs specific investigation.
Revenue sustainability and transferability
The financial due diligence will have confirmed the historical revenue figure. Commercial due diligence asks whether that revenue will continue. Specifically:
What proportion of revenue is under contract versus informal arrangement? Contracted revenue is more transferable and more defensible than revenue that exists because of a longstanding relationship with the current owner.
What are the contract durations and renewal dates? A business where 40% of revenue is up for renewal in the six months after completion presents a different risk profile from one where contracts roll annually across a diversified base.
What is the actual churn rate — and is it what the seller says it is? Request a customer-level revenue schedule for the last three years and build the churn analysis yourself rather than relying on the seller's narrative.
Which customer relationships are genuinely with the company — and which are with the owner personally? The test is straightforward: if you removed the current owner entirely, which customers would stay and which would need to be actively retained?
Competitive position and market dynamics
How defensible is the business's market position? This is a question that does not appear in any set of accounts but which affects the probability of the future earnings you are buying a multiple for.
What are the barriers to entry in this market? A business operating in a market with low barriers — where a new competitor can set up with limited capital or expertise — faces ongoing competitive pressure that a business with meaningful barriers does not.
Who are the main competitors, and how does the business compare on price, quality, service, and reputation? Speak to people in the sector who are not the seller. Advisers, former employees, and industry contacts often provide a more balanced picture than the information memorandum.
Are there structural trends in the market that will affect the business over the next three to five years? A business in a sector undergoing technological disruption, regulatory change, or structural demand decline needs to be valued with those dynamics in mind — not on the assumption that the past is a reliable guide to the future.
Does the business have genuine pricing power — the ability to increase prices without losing significant volume — or is it effectively a price taker in a competitive commodity market?
The pipeline and growth credibility
Many sellers present a growth story — the revenue opportunity in the pipeline, the new markets being entered, the product extensions in development. Commercial due diligence evaluates whether that story is credible.
What does the sales pipeline actually look like, and what is the historical conversion rate from pipeline to closed revenue?
Is the growth the seller describes dependent on the seller staying involved — or is it genuinely embedded in the business's commercial capability?
Have any of the growth initiatives the seller describes been attempted before, and if so, what happened?
Growth stories are not inherently dishonest — sellers believe them. But the distance between a credible growth story and an aspirational one is something commercial due diligence is specifically designed to assess.
Key supplier relationships and dependencies
The commercial due diligence should extend to the supply side as well as the demand side. Who are the critical suppliers, what are the terms, and what happens to those terms under new ownership? In businesses where supplier relationships — particularly preferential pricing or exclusive arrangements — depend on the personal relationship between the owner and the supplier, a change of ownership can affect cost structures in ways that are not visible in the historical financials.
People Due Diligence: What It Really Involves
People due diligence is the assessment of the human capital you are inheriting — the management team, the key operational staff, the employment structure, and the culture of the business. It is the workstream that buyers most consistently underestimate, and the one that produces the most painful surprises when it has not been done properly.
The reason is straightforward: in most SME businesses, the people are the business. The quality of the management team determines whether the financial performance you saw during due diligence continues under your ownership. The motivation and retention of key staff determines whether the operational capability survives the transition. The culture of the business determines whether the changes you plan to make will be embraced or resisted.
Management team assessment
Meeting the management team during the due diligence process is standard practice. But there is a significant difference between meeting people and genuinely assessing them. The questions that matter:
Does each member of the management team have genuine ownership of their function — or are they operating as implementers of the owner's decisions, without real autonomous capability?
How have they performed in periods when the owner was absent — holidays, illness, other business commitments? The answer to this question is more revealing than almost any other.
What is their understanding of the business's financial performance — can the FD or finance manager explain the accounts clearly, and do the operations and sales leaders understand the commercial drivers of the business?
Are they motivated to stay under new ownership — and do they understand what the change of ownership means for their roles, their compensation, and their future? Ambiguity about these questions is a retention risk.
Is there a genuine number two — someone who could run the business operationally if the owner and the new buyer were both absent for a month? If not, the key person dependency risk is more severe than the seller's narrative may suggest.
Key employee identification and retention risk
Beyond the management team, identify the people whose departure would cause the most operational disruption. These are not always the most senior people. In many businesses, they are technical specialists, long-standing customer relationship managers, or operational coordinators whose institutional knowledge is irreplaceable in the short term.
For each identified key person:
What are their employment terms — notice period, any restrictive covenants, any entitlements that are triggered by a change of ownership?
What is their relationship with the current owner — and how might the change of ownership affect their motivation and loyalty?
Are they aware of the sale process, and if so, what is their reaction? In many deals, key employees are kept unaware of the process until late in the day, which creates a period of uncertainty and anxiety when the news eventually breaks.
Is there anything in their employment history — performance issues, grievances, compensation disputes — that you should know about before completion?
Employment documentation and compliance
The legal dimension of people due diligence covers the employment contracts, policies, and compliance status of the business's workforce. The issues that surface most frequently:
Employment contracts that are out of date, missing for long-standing employees, or inconsistent in their terms across the workforce
Holiday accrual liabilities — particularly for employees who have not been taking their full statutory entitlement, which creates a balance sheet liability that may not be fully captured in the accounts
Undefined or undocumented commission and bonus arrangements that have been paid informally and which employees regard as contractual entitlements
IR35 and self-employment status — contractors who are functionally employees but have been treated as self-employed create potential HMRC liability that transfers with the business in a share purchase
TUPE obligations — in an asset purchase, the Transfer of Undertakings regulations require the buyer to inherit employees on their existing terms and conditions, with specific information and consultation obligations that, if not followed, create legal exposure
Culture assessment
Culture is the hardest thing to assess in due diligence and the most consequential thing to get wrong. A business with a strong, positive culture — where people are engaged, proud of their work, and aligned around common goals — is fundamentally easier to operate and grow than one where the culture is fragile, dependent on the founder's personality, or characterised by disengagement and high turnover.
Culture cannot be assessed from documents. It is assessed through observation and conversation. Spend time in the business beyond the formal management meetings. Talk to people at multiple levels of the organisation, not just the leadership team. Pay attention to how people talk about the business, about the owner, about their colleagues, and about change. The tone of those conversations will tell you more about the culture than any HR policy document.
The specific signals that suggest cultural fragility: high staff turnover relative to sector norms; a workforce that visibly defers all decisions upward; a narrative that is uniformly positive with no honest acknowledgement of challenges; an owner who speaks about the team in condescending or controlling terms; any suggestion that the business has been through significant management upheaval in the recent past.
Integrating Commercial and People Findings Into the Deal Decision
The output of commercial and people due diligence should feed directly into three things: the price, the structure, and the post-completion plan.
If commercial due diligence reveals that revenue transferability is lower than assumed — because of owner-dependent customer relationships, for example — the price should reflect that risk. Either through a lower upfront payment or through a deal structure that defers consideration until the revenue has been demonstrated to survive the transition.
If people due diligence identifies specific retention risks — a key technical specialist who is considering leaving, or a management team that has not demonstrated autonomous capability — the structure should include specific retention arrangements, and the post-completion plan should prioritise addressing those gaps quickly.
If both workstreams produce a clean picture — genuine commercial defensibility, real management capability, a motivated and well-documented team — that is evidence for the valuation and the deal structure as proposed. It is not a reason to increase the price. But it is a reason to proceed with confidence rather than caution.
The Due Diligence Mindset That Produces the Best Outcomes
The buyers who conduct the best due diligence are not the most sceptical. They are the most curious. They approach the process with a genuine desire to understand the business completely — its strengths, its vulnerabilities, and the specific risks that matter most given the price and structure of the deal they are contemplating.
That curiosity produces better outcomes than either uncritical optimism or excessive caution. It finds the issues that need to be addressed. It provides the foundation for a properly structured deal. And it gives the buyer the knowledge they need to run the business effectively from day one — because they are not discovering what they bought in the first six months of ownership. They already know.
Download the Dealwise Due Diligence Red Flag Checklist for a 40-point framework covering financial, legal, commercial, and operational due diligence — the questions that have surfaced the most material issues across real UK SME transactions.
Download the Due Diligence Red Flag Checklist at www.DealwiseAdvisory.co.uk
Contact Steve at [email protected] to discuss your due diligence process
WhatsApp Steve on +44 7930-857243
