Offers & due diligence
What commonly causes a business sale to fail during due diligence?
The usual reasons sales collapse in due diligence, the early warning signs in your own company, and how to deal with them first.
By Michael D. Rubin, CEO & Founder · September 2026 · 908 words
Sales usually fail in due diligence for one of a handful of reasons: the earnings turn out lower or less reliable than presented, the buyer finds a problem the seller did not disclose, the buyer's financing falls through, or the business weakens while the deal is under way. Almost all of these can be spotted and dealt with before a company goes to market.
Due diligence is the buyer's detailed check of your company after a letter of intent is signed. Nothing in it should surprise you. When deals collapse at this stage, it is usually because something that could have been known was not dealt with earlier.
The earnings do not hold up
The buyer priced your company as a multiple of adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, with owner and one-time costs added back. In diligence, its accountants rebuild that figure from your records. If add-backs cannot be supported, revenue was recorded early, inventory is overstated, or the books do not match the tax returns, the earnings shrink.
Because the price is a multiple of earnings, every dollar of earnings lost is several dollars of price. The buyer proposes a lower number, the seller feels misled, and the deal ends. This is the most direct path from signed letter to failed sale, and the most preventable.
The fix is to test your own earnings before a buyer does. Rebuild adjusted EBITDA from the records, attach support to every add-back, and remove any you cannot prove. A slightly lower number that survives diligence is worth far more than a higher one that collapses in the middle of it.
Other common deal-killers
Notice that most of these are not hidden disasters. They are ordinary features of a privately owned company that were never written down, explained or fixed. What turns them into deal-killers is the timing: found late, by the buyer, during exclusivity, they look like concealment even when they were simply overlooked.
| Problem | How it shows up in diligence |
|---|---|
| Undisclosed issues | Pending lawsuits, tax notices, environmental concerns or licensing gaps found by the buyer instead of told by the seller |
| Customer loss or concentration | A major customer turns out to be at risk, or leaves during the process |
| Owner dependence | Customers or staff prove loyal to the owner rather than to the company |
| Financing failure | The buyer's lender will not lend against the company as it looks after diligence |
| Declining results | Monthly numbers fall during the process and the buyer questions the trend |
| Contract and lease problems | The lease or key contracts cannot transfer without consent that is not given |
The quieter cause: lost momentum
Many deals die slowly rather than suddenly. Requests go unanswered for weeks, documents trickle in, the seller grows defensive, and the buyer's team shifts attention to another opportunity. Fatigue on both sides turns small issues into reasons to walk away. A deal that keeps moving has a far better chance of closing than one that stalls, which is why process discipline matters as much as the numbers. Someone on the seller's side needs to own the timetable, chase open items on both sides and raise problems while they are still small.
Early warning signs in your own company
Each of these is fixable before a sale and much harder to fix in the middle of one. Some take a month of bookkeeping; others, such as reducing dependence on the owner or on one customer, take a year or more, which is the best argument for looking at them well before you plan to sell. The guide to preparing your business for sale covers how.
- Your books and tax returns do not reconcile, and you are not sure why
- Your add-backs exist in your head but not on paper
- One or two customers account for a large part of revenue, with no written agreements
- You are the only person who can quote, sell or solve the hard problems
- There is a dispute, lapsed license or tax notice you have been meaning to deal with
- Your lease ends soon, or needs landlord consent to transfer
Disclose early, on your terms
A problem you tell the buyer about before the letter of intent can be priced, structured around, for example with a specific escrow or indemnity, or simply accepted. The same problem found by the buyer in diligence raises a bigger question: what else has not been said? Trust, once it slips, is hard to rebuild within an exclusivity period. Buyers widen their requests, slow down and start pricing in risks they cannot yet see, and a deal that was close to done starts to drift.
The long read on what causes a business sale to fall apart in due diligence goes further into each of these causes and how buyers react to them.
Where MDR & Associates fits
Every company we take to market has a financial recast, so the earnings buyers see are ones meant to hold up. Buyers complete a financial profile proving they can fund the purchase before they see details, which reduces financing surprises. And because we negotiate multiple letters of intent, there is often another interested buyer if the first one falls away. For companies that need work first, pre-exit consulting addresses these issues in the 12 to 24 months before a sale. Our success rate since 2008 is above 90%. To find out where your company stands today, request a free valuation snapshot.
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