Financial due diligence
Financial due diligence examines the quality of reported numbers rather than auditing them. The core output is usually a quality of earnings analysis: which revenue is recurring, which costs are one-off, how working capital moves through the year, and what normalised earnings actually look like.
Typical areas: revenue recognition, customer concentration, margin analysis by product or segment, net debt and debt-like items, working capital normalisation, and the accuracy of the forecast against past performance.
Findings here move price more often than findings in any other workstream, because they change the earnings base on which value is calculated.
Commercial due diligence
Commercial diligence tests the market case: market size and growth, competitive position, customer perception, pricing power and the credibility of the growth plan.
The work usually includes customer interviews, market research, competitor analysis and a review of the sales pipeline. For subscription businesses it examines churn and expansion in detail.
Founders are sometimes surprised by how directly customers speak to commercial diligence teams. Preparing reference customers, and knowing which accounts are unhappy, is worth doing before this starts.
Technology due diligence
Technology diligence assesses whether the product can support the plan. Areas covered: architecture and scalability, code quality and technical debt, security posture, infrastructure cost, third party dependencies and licences, development process, and key person risk in the engineering team.
For software companies this workstream can affect valuation directly, particularly where the review finds a rewrite is needed or where security practice falls short of what an acquirer's own standards require.
Open source licence compliance and data protection practice frequently produce findings that need remediation before closing.
Tax due diligence
Tax diligence reviews historical compliance and structural exposure: corporate tax filings, VAT treatment, payroll taxes, transfer pricing where multiple entities exist, share option scheme treatment, and R&D incentive claims.
Findings often result in specific indemnities in the purchase agreement rather than a price reduction. Tax advisers also work on transaction structure, which affects the after-tax proceeds founders receive and is worth addressing early rather than at signing.
Legal due diligence
Legal diligence covers corporate records, share capital history, material contracts and their change of control provisions, employment arrangements, intellectual property ownership, litigation, regulatory matters and data protection compliance.
Common issues in venture-backed companies: incomplete IP assignment from early contractors, option grants documented inconsistently, and customer contracts with change of control clauses that require consent before a sale can complete. Each of these takes weeks to resolve, which is why they should be found before a process starts.
Vendor diligence and preparation
Vendor due diligence is commissioned by the seller before going to market. A financial vendor report, and sometimes a commercial or technology one, is prepared for buyers to rely on.
The benefits are speed, control of the narrative and early identification of problems while there is still time to fix them. The cost is real, so this is more common in mid-market processes than in small transactions.
Even without a full vendor report, a light internal review across these five areas is worth the effort. The cheapest fix is always the one made before a buyer's advisers find it.
How the workstreams fit together
In a sale process the buyer commissions most of this work and pays for it, while the seller's advisor coordinates access, question flow and timing. In a fundraising the scope is narrower, focused on financial review, references and sometimes technical review.
Sequencing matters. Financial and legal usually start first, technology and commercial follow, and tax runs alongside structuring discussions. A capable lead advisor keeps the streams from overwhelming the management team at the same moment.