Operations Due Diligence

Operational due diligence is an independent assessment of a target company’s operating model, run before a transaction commits you to it. Where financial DD examines the numbers and commercial DD examines the market, operational DD examines the machine: whether the delivery engine can carry the growth case, whether quality is a system or a story, how dependent the business is on its founder, where margin leaks through rework and credits, and how cash actually moves. The purpose is pricing and planning: risks sized before they are yours, and a first-hundred-days agenda grounded in evidence. The deliverable is a written, board-grade assessment an investment committee can interrogate.

Deal teams are excellent at what deal teams see: the model, the market, the paper. The operating model resists that toolkit because its truths are not in documents — they are in how work moves, where decisions queue, and what the workflow does when the process map is not watching. Reading that requires having run operations, not analysed them. The complement works cleanly in practice: the deal team owns the transaction and the model; I supply the operating read that either validates the assumptions or reprices them. On several classes of finding — quality reality, delivery capacity, cash-cycle behaviour — an operator’s week is worth more than an analyst’s month, because pattern recognition does the work.

Six things, weighted to the thesis. The delivery engine: capacity, throughput mechanics, and whether scale-up is achievable at the assumed cost. The quality system: standards, measurement, defect handling — evidence versus assertion. Founder- and key-person dependence: the relationships, decisions and knowledge that leave when people do. Margin integrity: rework, credits, unbilled work and the other leaks that rarely have a line in the accounts. Cash-cycle mechanics: how billing actually runs and where cash actually sticks. And the organisation itself: decision rights, cadence, and whether the management layer runs the business or narrates it. Each area produces findings ranked by exposure and difficulty — aimed at the price and the plan.

A full assessment typically fits inside two to four weeks depending on access and the size of the operation — designed to run inside a standard exclusivity window, in parallel with the financial and legal workstreams rather than after them. Where the timetable is tighter, a pre-LOI red-flag read compresses to roughly a week: narrower, blunter, aimed only at the findings large enough to change the price or kill the deal. What I will not do is stretch the language to fit a timetable that cannot support the evidence — if access constraints mean a finding is provisional, the report says so plainly. A diligence product is only worth its evidence discipline.

A written assessment built for an investment committee: an executive read of two or three pages that states plainly what holds and what does not; findings ranked by financial exposure with the evidence behind each — what was examined, what it showed, how confident the conclusion is; the specific CIM claims that did and did not survive testing; and a first-hundred-days agenda sequenced by risk. No hundred-slide theatre — the length is governed by what the evidence supports and what a committee will genuinely read. Where it is useful, I present the findings to the committee directly and take the questioning; a read that cannot survive interrogation is not one you should price from.

Yes — a red-flag review built for exactly that stage: roughly a week, working from the data room, management sessions and targeted questions, aimed only at the operational issues big enough to reprice or kill the transaction. Founder-dependence the thesis ignores, a delivery engine visibly at capacity, quality machinery that is presentation rather than system, cash-cycle behaviour that contradicts the model. It will not produce the full evidence trail or the hundred-day agenda — that depth needs post-LOI access — but it answers the question that matters early: is there an operational reason to walk away, renegotiate, or proceed with specific conditions attached? The red-flag read is built to convert to full depth once exclusivity opens the doors.

More than a data room, less than a disruption. The workable minimum: management working sessions with the operators who actually run delivery, quality and billing — not only the CFO; a walk-through of the core workflow from sale to delivery to cash; system evidence where it exists — quality scores, utilisation, revision counts, credit notes, invoice ageing; and a sample of live or recent work. Sensitivity is normal at this stage, and the process respects it: sessions are framed as operational discussion, requests run through the deal team, and nothing reaches the target that signals conclusions. Where access is genuinely constrained pre-close, the report marks each finding’s confidence accordingly — evidence discipline includes being honest about the evidence you could not get.

I will answer that precisely, because diligence providers often blur it. My background is not deal-side; it is operating-side, and that is the point of the service. Nineteen years running operations, quality and governance at scale — auditing quality across 2,000+ campaigns and 450 clients, building measurement that protected more than USD 20 million in billings, re-engineering a billing cycle across 75 entities — is the craft of reading operating models against evidence, which is what an acquirer actually needs pointed at a target. The financial, legal and commercial workstreams belong with your existing advisers. What I add is the workstream deal processes structurally lack: an operator who has run machines like the one you are buying, reading this one before you own it.

Weigh three things. First, operating scars over deal counts: many ODD providers are former consultants or deal professionals; the best operational due diligence comes from people who have actually run operations at scale, because pattern recognition is the product — ask every candidate what they have operated, not how many processes they have reviewed. Second, evidence discipline: ask to see a sanitised report structure — findings ranked by exposure, traceable to evidence, confidence stated, rather than a hundred slides of observation. Third, independence from the fix: a provider positioned to sell the post-close transformation has an incentive to inflate findings. Whoever you choose, insist the assessment stands alone and survives committee questioning without its author in the room.

Yes, where it makes sense — and the assessment is designed so you are never dependent on it. The natural continuations: supporting the hundred-day agenda the report defined; a fractional COO engagement inside the portfolio company to install the cadence, measurement and quality systems the diligence found missing; or a standing advisory line to the board or the CEO through the ownership transition. Two disciplines keep this honest. The diligence conclusions are never shaped to generate follow-on work — the report would say the same things if we were certain never to meet again. And post-close work is scoped as its own engagement on its own merits, with the diligence handed over cleanly either way.