Financial or Commercial Due Diligence: Which Do You Need?

By Bill Anderson, FCCA, Chief Executive Officer, Assetica · Published 2026-10-22

Direct Answer: Financial due diligence tests whether the numbers in front of you are real. Commercial due diligence tests whether the market that produced those numbers will still be there after you buy. They answer different questions, they are carried out by different people, and the buyer who commissions one while assuming it covered the other is the buyer who overpays. On a small UAE acquisition financial due diligence is usually the non-negotiable one. On anything where the thesis depends on growth, you need both.

Both exercises get called due diligence, both produce a report, and both are commissioned at roughly the same point in a transaction. That is where the similarity ends. Confusing them is one of the more expensive mistakes a first-time acquirer makes, because the gap between the two is exactly where unpleasant surprises live.

This guide sets out what each one examines, where the boundary falls, and how to decide what a particular deal actually needs.

The two questions

Financial due diligence asks a backward-looking question: are the reported earnings genuine, repeatable and owned by the business rather than by the seller personally. It is forensic work on what has already happened.

Commercial due diligence asks a forward-looking question: is the market real, is the company's position in it defensible, and will customers keep buying once the current owner has gone. It is research into the world around the business.

A company can pass one and fail the other, and often does. Clean, audited, well-controlled accounts tell you nothing about a contract that will not be renewed next year. A thriving market tells you nothing about whether the owner has been running personal costs through the company.

What financial due diligence actually examines

The core of the work is a quality of earnings analysis: taking reported profit apart and rebuilding it as the earnings a new owner would actually inherit. That means removing one-off items, adding back genuinely non-recurring costs, charging a market salary for work the owner performs without pay, restating related party rent or services to market rates, and stripping out personal expenditure that has found its way into the accounts.

Alongside that sits the balance sheet work: testing whether receivables are collectable, whether stock is saleable, whether provisions are adequate, and whether liabilities have been fully disclosed. In the UAE, end of service gratuity deserves particular attention, because an underprovided obligation is a real debt that transfers with the company.

Working capital is a workstream in its own right. The buyer needs to know the normal level the business runs at, because the completion mechanism will be built around it and a seller who has quietly drained working capital before completion is transferring a funding problem.

Then there is tax. Since the introduction of UAE corporate tax, historic positions carry forward to the buyer, and registration, filing and transfer pricing exposures are now standard findings. The Federal Tax Authority corporate tax pages set out the obligations, and our guide to valuation and UAE corporate tax covers how the position feeds the number.

This is the work Assetica performs, and it is described in more detail in our guide to financial due diligence for a UAE acquisition.

What commercial due diligence actually examines

Commercial due diligence looks outward. It sizes the market the company sells into and asks whether it is growing, flat or quietly contracting. It maps the competitors, including ones the seller did not mention, and tests whether the company's advantage is real or simply a head start.

It talks to customers. That is the part owners find uncomfortable and the part that most often changes a buyer's mind. Reference calls establish whether customers are loyal to the business or to a person, whether they are actively shopping, and what they would do if the founder left. No amount of financial analysis substitutes for that.

It also examines the pipeline behind reported revenue, the pricing power the company holds, the regulatory or technological shifts bearing down on the sector, and the realism of the growth plan the seller has presented. Where a price is being justified by forecast rather than history, this is the workstream that decides whether the forecast is credible.

Commercial due diligence is usually performed by sector consultants or strategy firms rather than by accountants, because it rests on market research and primary interviews rather than on ledgers. Assetica does not provide it.

Where buyers get caught

The gap between the two exercises is where deals go wrong, and the pattern is consistent.

A buyer commissions thorough financial due diligence. The quality of earnings work is clean. The adjustments are modest. The balance sheet holds up. The buyer proceeds with confidence, and eighteen months later the largest customer does not renew, because that customer had been dealing with the founder for a decade and the founder has now gone. Nothing in the financial work could have found that. It was never looking.

The reverse happens too, though less often, because buyers who commission market research first tend to be the more sophisticated ones. A compelling market study justifies a full price, and the acquirer discovers afterwards that reported earnings included an unpaid founder, a related party property at below market rent, and family members on the payroll who did not work there.

Our piece on the top acquisition deal risks sets out the specific patterns that recur in UAE transactions.

Which one does your deal need

There is no universal answer, but the shape of the deal usually decides it.

Where you are buying an established, profitable business at a multiple of historic earnings, and the thesis is continuity rather than growth, financial due diligence is the essential one. You are paying for earnings that already exist, so the question that matters is whether they are real.

Where the price depends on a forecast, on entering a new segment, or on a market expanding, you need both. Paying today for growth that has not happened yet, without independently testing whether that growth is plausible, is speculation.

Where customer concentration is high, commercial work stops being optional at any deal size. If a handful of relationships carry the revenue, the only way to understand the risk is to speak to those customers.

Where the target is small and the consideration is modest, a full commercial study may cost more than the risk it mitigates. In that case a focused set of customer reference calls, run properly, captures much of the benefit at a fraction of the cost.

The seller's version: vendor due diligence

Sellers increasingly commission the financial work on themselves before going to market, which is what vendor due diligence means. The logic is straightforward: every adjustment a buyer finds becomes a negotiating lever, and finding them first means fixing them, or at least explaining them, on your own terms rather than under pressure in a data room.

It also shortens the process, because a buyer presented with a prepared, evidenced earnings analysis has less to discover and less reason to extend exclusivity. Our guide to vendor due diligence in the UAE covers how it is scoped and when it pays for itself.

How the findings move the price

Due diligence findings do not simply reduce the headline figure. They act in three distinct ways, and understanding which one applies matters.

Some findings reduce normalised earnings, and because the price is a multiple of that figure, the effect is amplified. An unadjusted owner salary does not cost the seller the salary, it costs the salary multiplied by the multiple.

Some findings reduce the multiple itself rather than the earnings. Customer concentration, owner dependence and unaudited records do not change what the business earned, they change what a buyer will pay for each dirham of it.

Some findings move neither, but change the structure. They appear as deferred consideration, an earn-out, an indemnity or an escrow. The headline price survives, and the risk is reallocated to the seller. Our explanation of enterprise value and equity value covers how these adjustments reach the amount that actually lands in a shareholder's account.

Sequencing and what to expect

In practice the commercial work tends to start first where it is being done at all, because a negative finding there kills the deal and there is no sense paying for forensic accounting on a business you are not going to buy. Financial due diligence then runs once the thesis has survived.

Both should be instructed before exclusivity expires and well before signing, with enough time for the findings to be negotiated rather than simply absorbed. Buyers who leave due diligence until the documents are drafted end up choosing between accepting what they find and walking away from sunk legal costs, which is not a negotiation.

A valuation sits alongside both rather than inside either. The valuation establishes what the business is worth on a defensible basis, prepared to the International Valuation Standards and the RICS Red Book; due diligence tests whether the inputs to that valuation are sound. Because Assetica neither audits the target nor brokers the transaction, the same firm can prepare the valuation and run the financial due diligence on one deal without conflict, which keeps the earnings analysis consistent across the two workstreams.

What each exercise costs you in time

Buyers routinely underestimate the elapsed time, and the delay is almost never the analysis. It is waiting for the seller to produce documents.

Financial due diligence on a small to mid-sized UAE company needs the last three years of financial statements, the current year management accounts, the trial balance and general ledger, bank statements, the payroll register, the customer and supplier ledgers with ageing, the trade licence and shareholding documents, material contracts, and details of related party balances and any debt. Where the accounts are audited the work moves considerably faster, because an independent party has already tested much of it.

Commercial work needs less from the seller and more from the market, but it does need something that sellers are often reluctant to grant: permission to speak to customers. That permission is usually withheld until late in the process, for the obvious reason that a seller does not want customers knowing the business is for sale. Plan for it, because a commercial study without customer contact is largely desk research.

The practical consequence is that a buyer should ask for the document list at the point of signing heads of terms, not after. The gap between agreeing a price in principle and having the evidence to test it is where deals lose momentum, and momentum is what carries transactions to completion.

Buying or selling a UAE business?

If you need the earnings tested before you commit, or you want the adjustments found before a buyer finds them, that is the financial workstream. Standard reports are issued in five to seven business days from complete documents, with expedited delivery in two to three.

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Frequently Asked Questions

What is the difference between financial and commercial due diligence?

Financial due diligence tests whether the numbers are real: it rebuilds reported profit into the earnings a new owner would actually inherit, and tests the balance sheet, working capital and tax position. Commercial due diligence tests whether the market behind those numbers will still be there, by sizing the market, mapping competitors and speaking to customers.

Which one does my deal need?

Where you are buying established earnings at a multiple of history and the thesis is continuity, financial due diligence is the essential one. Where the price depends on a forecast or on a market expanding, you need both. Where customer concentration is high, commercial work stops being optional at any deal size.

Does Assetica provide commercial due diligence?

No. Commercial due diligence rests on market research and primary customer interviews and is usually performed by sector consultants or strategy firms. Assetica performs the financial workstream, the quality of earnings analysis, balance sheet and working capital testing, and the tax position, and prepares the valuation that sits alongside it.

What is vendor due diligence?

It is the financial work commissioned by the seller on their own business before going to market. Every adjustment a buyer finds becomes a negotiating lever, so finding them first means fixing or explaining them on your own terms rather than under pressure in a data room. It also shortens the process.

How do due diligence findings change the price?

In three ways. Findings that reduce normalised earnings are amplified by the multiple, so an unadjusted owner salary costs the salary multiplied by the multiple. Findings such as customer concentration or owner dependence reduce the multiple rather than the earnings. Others change neither and instead appear as deferred consideration, an earn-out or an escrow.

When should due diligence start?

Both should be instructed before exclusivity expires and well before signing, with enough time for findings to be negotiated rather than absorbed. Where commercial work is being done it usually runs first, because a negative finding there ends the deal and there is no sense paying for forensic accounting on a business you will not buy.

Disclaimer. This article is general information about valuation practice in the UAE and is not a valuation, an opinion of value, or tax, legal or investment advice. Any figures or reference ranges are indicative and are not a quotation for any specific business. Rules, rates and the requirements of individual authorities change, so confirm the current position before relying on anything here. For your own circumstances, book a scoping call.

Speak to Assetica about Financial Due Diligence

Assetica is an independent business valuation firm in Dubai. We do not audit and we do not broker deals, so the number carries no conflict. Read more about financial due diligence, or book a scoping call. Standard reports are issued in five to seven business days.