You cannot call a target's customers before closing without risking the deal itself. Here is what the contracts, the concentration numbers and the receivables can tell you instead.
Key takeaways
STEP 01 OF 10
The first and most measurable question is simple: how much of the target's revenue sits with how few customers. Customer concentration is one of the standard items in a buyer's financial due diligence, alongside “key customer/supplier contracts and revenue concentration” — deavo's own framing of a first-time buyer's checklist at its due-diligence checklist. Build the concentration table from the target's own accounting records before you form any view on quality — a business where the top three customers carry half of revenue is a genuinely different asset than one with the same revenue spread across two hundred accounts, whatever the earnings multiple implies about the two being comparable.
STEP 02 OF 10
On an asset purchase specifically, customer contracts do not automatically move to the buyer. Each one needs individual review: “if a contract restricts assignment without the customer's consent, that consent needs to be obtained, or the buyer may not actually be entitled to enforce — or benefit from — that agreement going forward” — see customer contract consents in an asset purchase. This is not a formality: a buyer that closes without checking assignment restrictions can discover, after the fact, that its largest customer relationship never legally transferred at all.
STEP 03 OF 10
A share purchase does not change the contracting legal entity, but that does not mean customer contracts are automatically unaffected — a change-of-control clause can still give a customer, landlord or supplier the right to react to a change in who ultimately owns the business, even though only the shares are changing. Confirm whether any material customer contract carries this kind of clause before assuming a share structure sidesteps the consent problem entirely; it narrows the issue relative to an asset deal, but it does not always eliminate it.
STEP 04 OF 10
Where a contract does restrict assignment, treadstonelaw's practical advice is to identify it early and build the response into the deal timeline, because “purchase agreements often deal with this in advance — for example, by carving that one contract out of the closing until it resolves, adjusting the purchase price, holding back part of the funds until the consent comes through.” Proceeding without consent on a material contract leaves real exposure on both sides — the customer could claim breach, and “the buyer may not actually have enforceable rights under the agreement” at all.
STEP 05 OF 10
Accounts receivable aging is one of the more useful diligence tools precisely because it requires no customer contact at all — a customer base that consistently pays late, or whose receivables balance is quietly growing faster than revenue, is telling you something about relationship or product health that a revenue figure alone will not show. Pair this with the AR/AP aging step in preparing a lender package a bank will approve, since a lender will be looking at exactly the same data.
STEP 06 OF 10
Not all revenue carries the same durability. Deavo's comparison of how Canadian trades businesses are actually assessed makes the general point plainly: “recurring/contract revenue vs one-off project work” and “how much of next year's revenue is already reasonably certain” are separate questions from the top-line total — see what Canadian trades businesses are selling for. The same distinction applies well beyond trades: build your own split between contracted, recurring and one-off revenue from the target's own invoicing history, rather than taking the seller's characterization of “mostly repeat business” at face value.
STEP 07 OF 10
Whatever financial or deal-report package the target's numbers came packaged in, treat it as a starting point rather than a guarantee — “a deal report is not a valuation and is not a guarantee that the numbers will hold up,” in deavo's own words at reading a deal report. The quality of the package itself is informative too — a well-organized customer and contract file “tends to say something about how organized the seller's own business is,” which is its own signal about how the customer relationships are likely managed day to day.
STEP 08 OF 10
A customer base that is genuinely loyal to the business is a different asset from one that is loyal to the departing owner personally. Deavo's due-diligence checklist names owner dependence as its own line item precisely because it is easy to miss from the financials alone — ask, contract by contract where possible, whether the relationship is institutional (a service agreement, a standing purchase order) or personal (the owner's own long-standing relationship with a buyer at the customer), since the second kind is genuinely harder to value and retain post-closing.
STEP 09 OF 10
A customer base concentrated in contract or recurring revenue does more than reduce risk qualitatively — it can also affect how easily the deal itself finances. Deavo notes that businesses “with multiple locations, or licensing that needs to be transferred or reapplied for” tend to add time to a sale process; the equivalent point for customer base is that a lender assessing repayment capacity will weigh concentration and contract quality much the way you are in this step, so a weak customer base can show up twice — once in your own risk assessment and again in the lender's.
STEP 10 OF 10
Findings here rarely kill a deal outright on their own — more often they become the basis for a price adjustment, a specific indemnity, or a holdback tied to the contracts most at risk of non-assignment or customer attrition. Agree upfront, ideally in the letter of intent, how findings on customer concentration and contract consent will be handled if they turn out to be significant, rather than negotiating the response for the first time after diligence is already complete.
Contacting the target's customers directly before closing. This risks alerting customers, employees or competitors to a pending sale before it is final, and can itself damage the relationships the buyer is trying to assess. Test revenue quality through contracts, concentration data and receivables instead.
Assuming customer contracts transfer automatically on an asset purchase. They do not. An unreviewed assignment restriction can mean the buyer never actually acquires enforceable rights under the target's most important customer agreements.
Reviewing contracts for consent language only after diligence has otherwise wrapped up. Consent requests take time to come back, and a customer asked at the last minute has more leverage to renegotiate terms than one asked early in a calm, unhurried process.
Treating a share purchase as immune to change-of-control issues. The legal entity does not change, but individual contracts can still carry change-of-control clauses triggered by a change in ultimate ownership. Check the material contracts regardless of structure.
Taking the seller's characterization of “repeat business” at face value. Build your own split between contracted, recurring and one-off revenue from the target's own invoicing history rather than accepting a verbal summary.
To illustrate the mechanics only — the figures are a drafting choice for this example, not a benchmark.
Scenario A. Target A reports $1,200,000 in annual revenue, spread across 180 active customer accounts with no single customer above 6% of revenue, most under multi-year service contracts containing standard assignment-consent language the buyer confirms can be satisfied before closing. Receivables aging shows 92% collected within 45 days, consistent over the past eight quarters.
Scenario B. Target B reports the identical $1,200,000 in annual revenue, but 55% of it sits with a single customer under a contract that expressly prohibits assignment without consent, and that customer's own accounts payable to the target have been aging past 90 days for the last three quarters. The revenue total is the same number on the same page of the same financial statement — the underlying asset is not comparable.
Neither concentration nor aging alone tells the whole story, but read together they produce a materially different view of what $1,200,000 in reported revenue is actually worth to a buyer, before any multiple is even applied to it.
The right diligence emphasis shifts with how the target actually earns its revenue.
Match the diligence emphasis to how the specific target actually earns its revenue, not a generic checklist.
Rarely, and only with the seller's explicit agreement and careful sequencing — premature customer contact risks damaging exactly the relationships being assessed. Contracts, concentration data and receivables aging cover most of the same ground without that risk.
It can. Many commercial contracts define a triggering change of control by reference to ultimate ownership, not just the legal entity's name — check the specific clause language rather than assuming a share structure sidesteps it.
Purchase agreements commonly carve the affected contract out of closing until consent is obtained, adjust the price, or hold back part of the funds pending resolution — agree the approach before closing, not after.
There is no fixed threshold — a single-customer concentration a lender treats as a real financing constraint on one deal can be a manageable, well-documented institutional relationship on another. Weigh the concentration figure alongside contract durability and payment history, not on its own.
A short call can flag what the revenue number alone will not show.
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