Operational due diligence asks a question the financial and legal workstreams cannot: whether this business can actually deliver what the plan says it will. It is the least standardised of the workstreams and the one most often skipped on smaller transactions, which is unfortunate, because the constraint it finds is usually the reason a growth plan does not happen. This page sets out the four areas.
Capacity: what breaks at twice the volume
Which part of the operation is at its limit and what relieving it costs. A plan that assumes doubling revenue over a facility, a team or a system that is already at ninety per cent is a plan with an unbudgeted capital line in it, and finding that after signing is expensive.
Supply chain and dependency
Single-source suppliers, lead times, and anything the business could not replace within a quarter. Concentration here is the mirror of customer concentration and gets far less attention, even though it can stop a business completely rather than merely reduce its revenue.
Process maturity and how much lives in heads
Whether the way things are done is written down or held by the people who have always done them. An operation that works entirely on institutional memory is one where every departure is a real loss, and it is a common finding in owner-managed businesses.
Quality, service and what customers actually experience
Defect rates, service levels, complaints and returns. These are the leading indicators of the revenue the model projects, and they are usually available in the business even when nobody has been asked for them before.
Questions people ask about operational due diligence checklist
What does operational diligence look for?
Whether the business can deliver the plan: capacity, supply dependency, how much process lives in people's heads, and what customers experience.
What is most often missed?
Supply concentration. It gets far less attention than customer concentration and can stop a business rather than merely reduce it.
Why does process maturity matter?
An operation running on institutional memory loses real capability with every departure, which is common in owner-managed businesses.