The Importance of Due Diligence on Employee Roles in Small Business Acquisitions

When I evaluate a small business, I know that people are just as important as financials. Employees carry the institutional knowledge, customer relationships, and day-to-day expertise that make the company function. That’s why one of the most overlooked but essential parts of due diligence is mapping and understanding employee roles.

Early in my acquisition career, I underestimated this. I focused on revenue, margins, and customer contracts without fully grasping which employees made those numbers possible. I assumed that once I bought the business, employees would simply stay in place and continue doing what they had always done. That assumption cost me time, money, and trust.

Now, I treat employee role diligence as a top priority. I want to know exactly who does what, how critical each role is, and what risks I inherit if someone leaves.

Why Employee Role Diligence Matters

Employee role diligence matters because people aren’t interchangeable. Some roles are so critical that if the person leaves, the business falters. Other roles may be duplicated or inefficient. By studying roles during diligence, I can:

• Identify key employees whose retention is essential
• Spot gaps where processes aren’t documented
• Understand how dependent the company is on the owner
• Plan succession and training needs after closing
• Protect value by preventing knowledge loss

My Early Mistakes

In one of my first acquisitions, I didn’t realize how much a mid-level manager handled daily. I thought the owner was the key figure, but this manager actually kept operations running. Within months of closing, she resigned, and the business nearly ground to a halt.

In another deal, I didn’t realize that multiple employees were duplicating tasks. Payroll was bloated, and margins were weaker than I expected. If I had done deeper diligence on roles, I would have caught it.

Both experiences taught me that understanding roles is just as critical as understanding revenue.

How I Evaluate Employee Roles

When I study employee roles, I follow a structured process:

1. Organizational Chart
I request a full org chart that shows reporting lines and responsibilities.

2. Job Descriptions
I review formal job descriptions (if they exist). If they don’t, I interview managers and employees to clarify responsibilities.

3. Key Person Risk
I identify employees whose departure would seriously damage the business.

4. Overlap and Redundancy
I look for duplicated functions across roles.

5. Owner Involvement
I map how much the seller personally does and whether that work can be transitioned.

6. Compensation Alignment
I check whether pay aligns with industry benchmarks. Overpaid or underpaid staff can both create risks.

Questions I Ask During Diligence

• Who are your most important employees and why?
• What would break if specific employees left tomorrow?
• How is work documented and trained?
• Do you have succession plans for key roles?
• What is the average tenure across employees?

The answers help me see both strengths and vulnerabilities.

How I Protect Employee Roles Post-Acquisition

Once I close, I prioritize:

• Retention bonuses for key employees
• Documenting processes so knowledge isn’t trapped in one person’s head
• Cross-training staff to reduce single points of failure
• Building clear communication channels to reassure employees about their roles

Why This Impacts Valuation

A business with strong, well-documented roles and limited key person risk is worth more. A business with fragile dependencies is worth less. That’s why employee role diligence directly affects valuation and deal terms.

Final Thoughts

I’ve learned that due diligence on employee roles is one of the most important and underappreciated parts of acquisitions. It protects value, ensures smoother transitions, and prevents surprises.

That’s why I map every role, identify key people, and plan retention and training strategies before I buy. Because at the end of the day, businesses don’t run on spreadsheets, they run on people.

I continue sharing my acquisition frameworks and lessons at DrConnorRobertson.com, where I document how I build durable businesses deal by deal.