Smart investment between opportunity and sustainability

Financial diligence is well-covered ground. The accounts get examined, the adjustments get argued, and both sides usually end up close. Where positions diverge is on questions the financial model doesn't ask.

1. Customer concentration behind the revenue line

Revenue looks stable. Underneath it, one customer may be 40% of gross margin, on a contract with a twelve-month notice period and a procurement director who's about to retire. The income statement doesn't show that. A customer-level margin analysis does.

2. Key-person dependency

Ask who has to be in the room for a decision to happen. In a lot of mid-market businesses the answer is one or two people, and neither has an employment contract that reflects it. This is the risk most often identified after the deal closes.

3. Deferred capital expenditure

Maintenance capex can be postponed for several years without visible operational consequence. It shows up as strong cash conversion. What it actually is, is a liability with no line item. Walk the assets.

4. Regulatory exposure in transition

Sectors under active regulatory reform carry compliance costs that haven't landed yet. The current numbers are accurate and about to become historical.

None of these require exotic technique. They require someone to ask the question during the diligence period rather than in the first board meeting after completion.