Due Diligence: Uncover the Real Commercial Story
The Issue
Most DD Processes Miss the Truth
Research shows investor / buyer due diligence reviews historically focus on legal and financial topics. Typically, only 15% of due diligence effort investigates the sales function - it's not enough. Financial and legal assessments explain the history of the target business. Sales processes and pipeline define the future.
Typical Data Room Contents
Information in data rooms typically covers revenue report (backward looking), customer lists (who they sold to, not how), organisational charts (structure, not capability) and CRM screenshots (static, not dynamic).
The most valuable information that will give you insight into the future performance of the business is missing:
- Is the revenue repeatable or dependant on key relationships?
- Is the pipeline real, or fantasy?
- How well is the sales process documented - or does it live in heads of a small group of people?
- How efficient is the customer acquisition process (CAC)?
- Can the business scale without the founders or a small group of key salespeople?
The risk is you invest in or buy a business that looks good on paper but falls apart post-acquisition. Typically, this is because the commercial engine was fragile or held together by individuals, not process.
Failure to deliver on the revenue forecast is one of the main reasons most acquisitions fail to meet expectation. The same risk applies to investments when the new cash injection results in poor discipline that would be controlled by strong sales processes.
Our Approach
Scientific Sales Due Diligence
Dunrod applies a structured assessment process to the target company's sales operation, revealing what typical due diligence process miss.
1. True Pipeline Health
We analyse key metrics on pipeline composition and quality beyond total value, including conversion rates, deal velocity and ageing, win/loss patterns, and forecast accuracy. This reveals if projected revenue is realistic or aspirational. Is the pipeline artificially inflated with dead or early-stage deals, or genuinely balanced for consistent growth?
2. Revenue Stability & Risk
Topics include concentration risk, churn rates, contract renewal dates and upsell/cross-sell potential. What are the metrics on sales cycle lengths and time to revenue (consistent, or getting longer)? This identifies if you are buying a solid, scalable business or a collection of relationships owned by key individuals.
3. Process or Personality Dependancy?
Does the company follow Sales as a Science principles? What are the sales processes and documentation, CRM discipline and data quality? We look for single-person dependencies, especially the founders and leadership team. This identifies if you're buying a solid, scalable business or a collection of individual relationships that walk out of the door.
4. Sales Team Capability & Capacity
We assess individual performance distribution, target attainment, activity levels and efficiency metrics. Is there investment in training, coaching and development, or has this been cut to show short-term profit gain that destroys long-term value? How is the commercial team compensated – is it appropriate to the industry?
This identifies if the team can deliver post-transaction or will you have to deal with capacity constraints or personnel issues as a result of any changes that need to be implemented?
The Process
Dunrod takes you through a proven process to get your business ready for due diligence, helping you maximise your business valuation.
- Phase 1 Data Room Analysis - reviews the forecast, key metrics and historical track record, including pipeline conversion ratios and forecast accuracy.
- Phase 2 - Deep Dive Assessment -interview the sales leaders and team to assess processes and documentation. Conduct a detailed review of the current pipeline and benchmark the sales KPIs against industry norms where possible.
- Phase 3 - Due Diligence Report - "can the sales function deliver the financial plan"? The answer is usually "no" or a "qualified yes." If so, you need to assess your options. Do you accept it and plan how to fix it, reduce the offer, tighten the warranties, amend earn outs or even walk away? Dunrod has the experience to contribute to these conversations.
Sales due diligence normally identifies concerns, so needs to be handled with care. A clumsy or aggressive approach can kill deals. We have the experience and relationship skills to conduct the process with sensitivity, whilst remaining thorough.
Post Acquisition
Due Diligence provides a detailed health check on the sales function in your new acquisition or investment. This should be used to introduce improvements decisively and quickly, or do you merge them into your own sales function.
Each investment or acquisition has its own characteristics, so there is no single answer to "what next?"
Dunrod can recommend the best approach and help implement the changes through our other services - Sales Optimisation, Fractional Sales Leadership and Sales Coaching.
Alternatively, we can introduce you to our Change Management associates to help with post acquisition integration so you maximise the value of synergies between your business and your new operations.
The Investment Case
Failure to conduct effective sales due diligence carries real risk. The sales function has the biggest influence on the future performance of the target business, so should not be left to chance.
If the pipeline was fiction, key salespeople leave and take customers with them or revenue projections fail to materialise, you will have overpaid for a business that will probably need more investment soon after the transaction closes.
With effective sales and commercial due diligence, you know exactly what you're buying. You price in any material risks and have a ready made improvement plan for immediate deployment post transaction.
If you don't have a solid due diligence process, pause any investment or acquisition process now.
Get in touch and we will help you avoid the risk and costs of finding the issues too late.