When owners buy a company, due diligence is usually organised around three professional reviews: financial, tax and legal. These are essential. They confirm the numbers, uncover liabilities and test the contracts. Yet many acquisitions that disappoint do so for reasons those reviews do not fully capture: customers who leave with the founder, key people who resign, a culture that does not fit, systems that cannot be integrated.
As an owner who knows how businesses really work, you are often better placed than any adviser to examine these areas. This article sets out where to look.
1. Where the relationships really sit
Ask who owns the most important customer relationships. Is it the selling owner, a single salesperson, or the organisation as a whole? Practical ways to find out:
- Review the largest customers and who is the main contact for each
- Ask how long each relationship has existed and how it started
- Where appropriate and agreed, meet key customers before closing, often with the seller
- Look at what happened when a contact person left in the past
If relationships depend on the seller, plan the transition carefully and consider structuring part of the price accordingly.
2. Key people and their intentions
Identify the employees whose departure would hurt most: technical specialists, sales leaders, production managers. Understand their roles, their terms and, where possible, their likely reaction to new ownership. Consider retention arrangements and plan early conversations after announcement.
3. How decisions are actually made
Every company has an official structure and a real one. Ask how pricing decisions are made, who approves purchases, how problems are escalated. In founder-led companies, many decisions run through one person. Understand what will happen when that person steps back.
4. Culture and ways of working
Culture is difficult to diligence but important. Look at:
- How the company treats customers and employees
- How meetings run and how information flows
- Attitudes to change, quality and risk
- Staff turnover and the reasons people leave
Spending time on site, informally, often reveals more than any document.
5. Commercial quality
Go beyond revenue totals:
- Revenue by customer, product and channel over several years
- Customer churn and reasons
- Pricing history and how prices are set
- Pipeline quality and conversion
- Dependence on a small number of customers or a single channel
6. Operations and capacity
- Condition of equipment and facilities
- Maintenance and investment that has been postponed
- Capacity constraints that would limit growth
- Supplier dependencies and terms
7. Systems and data
Integration often stumbles on systems. Understand which ERP, CRM and accounting systems are in use, the quality of data, and what it would take to align them with yours.
8. Compliance and licences
Check permits, certifications, environmental matters and sector-specific obligations. Your legal advisers will cover much of this, but your operational knowledge helps identify what matters most in practice.
Questions to ask the seller directly
- What keeps you awake at night about this business?
- Which customers would you worry about losing, and why?
- Who in the team would you hire again tomorrow?
- What would you invest in if you were staying for ten more years?
- What have you postponed?
- What should I be careful about in the first year?
Sellers often answer these questions honestly when asked respectfully, especially in owner-to-owner conversations.
Turning findings into decisions
Due diligence findings usually lead to one of four responses:
- Accept the issue as part of the business
- Fix it before or after closing
- Price it into the valuation or structure
- Walk away if it undermines the investment case
Decide in advance which issues would be deal-breakers. It helps you stay disciplined when emotional commitment grows.
A reminder on specialist advice
Owner-led diligence complements, but does not replace, professional financial, tax and legal reviews. The right scope depends on the transaction and jurisdiction, and qualified advisers should be involved.
Organising the work
Owner-led diligence works best when it is structured. Assign each area to a named person in your team, agree the questions to be answered, and set a short timeline. Collect findings in a single document, rated by importance, so that the most significant issues are visible at a glance. Hold a review session before final negotiations to decide which findings affect price, structure or the decision to proceed. This discipline keeps the process focused and prevents important observations from being lost among routine ones.
How LXN works with owners
We support owners in buy-side due diligence with a commercial and operational lens, drawing on our experience of building and running companies. We coordinate specialist reviews and help translate findings into decisions on price, structure and integration.
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