Diligence is not one-size-fits-all: Tailoring your approach by sector

If you have ever been part of a business transaction, you know that no two industries behave the same way. The same set of numbers can inspire confidence in one company and raise questions in another. A 20% gross margin in a software business could reflect efficiency, while in manufacturing it might point to cost pressure.

Yet, many investors and founders still approach diligence with a one-size-fits-all mindset. Checklists get ticked off, reports look complete, and somewhere along the way, the real story behind the numbers gets lost.

Diligence is not just about verifying financials. It is about understanding how a business truly operates and what could put that rhythm at risk. Every industry has its own rhythm, orchestrated by what drives growth and what threatens it.

Technology and SaaS: Chasing recurrence, not just growth

In technology, growth is easy to spot; sustainability is not.

I once worked on a software deal where revenue had grown 34% in a single year. When we looked closer, we discovered 28% of customers had left in the same period. The revenue was rising, but the business base wasn't stable. This shifted our focus from growth rate to growth quality.

Were customers staying long enough to justify acquisition costs? High spending on customer acquisition meant little if clients departed months later.

Another red flag emerged in deferred revenue. What seemed like a healthy increase in demand was actually masking implementation delays and service issues. The growing backlog of undelivered services was hurting retention as frustrated clients became less likely to renew. This led us to scrutinise delivery capacity more closely, as real growth depends on fulfilling contracts, not just signing them. 

Key diligence question: Is the growth truly sustainable, or is deferred revenue masking service delays that could affect retention?

Manufacturing: Balancing concentration and control

Manufacturing tells a different story. It is less about rapid scaling and more about stability and control.

In one industrial acquisition, the company presented strong numbers: a 24% EBITDA margin, growing orders, and a clean audit trail. Everything looked solid until we broke it down further, as nearly 61% of revenue came from just two customers. This implied that one contract non-renewal or pricing renegotiation could change the entire year's results. At the same time, inventory was piling up faster than sales, pointing to inefficiencies in production and planning.

That combination raised concerns, as a key customer departure would immediately hit cash flow, while growing inventory meant more cash was tied up in idle materials, increasing carrying costs and the risk of write-downs. We shifted our focus from profitability to resilience, questioning whether this business could withstand a slowdown in demand or manage working capital under pressure. The answers said more about its strength than any margin percentage could.

Key diligence question: Can the business maintain profitability if demand slows or inventory continues to build up?

Consumer and Retail: Where numbers meet behaviour

In consumer and retail, diligence is about understanding what drives sales performance, where every number tells a story about location strength, pricing decisions, and store consistency. 

I remember one retail diligence where sales had been growing steadily for years, appearing successful until we compared store-by-store performance. Same-store sales had been flat for six straight quarters, with growth coming mainly from new locations. While some stores in high-traffic areas were thriving, others barely broke even, and overall growth relied heavily on discounts and promotions.

The risk was clear: the business was expanding but not improving. New stores masked weak performance in existing ones, while short-term tactics drove profitability instead of fundamentals. A sensitivity analysis revealed how quickly small shifts in traffic or pricing could erode margins. The most sustainable stores weren't necessarily the newest or largest, but those performing consistently despite traffic variations. 

Key diligence question: Are sales driven by sustainable demand and consistent store performance, or are they dependent on high-traffic locations and promotions?

The mindset behind effective diligence

Effective diligence work begins with curiosity, not just ticking boxes. It starts with asking why things look the way they do: 

• Why are margins stable? 
• What is driving that sudden rise in revenue? 
• Are those numbers backed by delivery capacity, operational control, or simply timing?

Each sector tells its story differently. In software, it's about revenue quality and delivery performance. In manufacturing, the focus is on customer concentration and working capital. In retail, it's sales patterns, location strength, and consistency.

When diligence begins with a hypothesis, it turns analysis into discovery. It helps investors see beyond numbers to test whether performance is truly sustainable. As deal activity grows, those who ask the right questions will spot both opportunity and fragility. Ultimately, diligence is about uncovering the truth behind the numbers and knowing whether a business can perform on autopilot once the deal closes.

Arunima Motiwala leads financial due diligence at Grant Thornton Advisors’ M&A team