Why Business Sale Deals Collapse in Underwriting

The asking price is built on $700K of Seller's Discretionary Earnings. The lender's analyst strips $110K of undocumented add-backs. The deal now has to service debt on $590K - and the DSCR breaks. The buyer asks for a price cut; the seller refuses; the deal dies.

Fix: document every add-back with source paperwork before listing. If it doesn't survive your own review, take it out.

The internal P&L shows $2.1M revenue. The federal return shows $1.85M. There's a reason - cash-basis vs accrual, timing, owner distributions miscategorized - but nobody's ever written it down. The lender treats the unreconciled gap as a red flag and prices the deal off the lower number.

Fix: build a book-to-tax reconciliation for three years before you list. This is the single most-requested document in underwriting.

One customer is 34% of revenue. It came up in due diligence, not in the CIM. The lender either declines or restructures - usually requiring a larger seller note on standby and a longer earn-out tied to that customer's retention. The buyer's return math no longer works.

Fix: put concentration on the front page of the CIM with a retention story. Deals with disclosed concentration and a story close; hidden concentration kills deals.

The buyer looked strong at LOI. In formal underwriting, a 640 FICO, a recent tax lien, or thin liquidity for the equity injection surfaces. The lender declines. Weeks of the seller's deal window are gone.

Fix: seller-side, insist on a lender pre-qualification letter before accepting an LOI. It's not rude - it's standard, and it saves months.

Every material customer relationship, vendor negotiation, and operational decision runs through the owner. The lender's transition-risk analysis flags the business as untransferable. Deal terms shift - a longer transition, a larger seller carry, a price reduction - or the deal breaks.

Fix: 12–24 months before listing, document processes, delegate key relationships, and build a second-in-command who can be introduced to the buyer on day one.

The largest customer contract has a change-of-control termination clause. The equipment lease requires lessor consent. The franchise agreement isn't transferable without corporate approval. Any one of these can freeze a closing.

Fix: pull every material contract before listing. Flag assignment provisions, then either pre-negotiate consent or price the risk into the deal.

The LOI said "delivered with normal working capital." Nobody defined normal. At closing, the buyer wants a $180K working capital target; the seller expected to sweep the AR balance. The gap becomes a price fight in the final 72 hours.

Fix: define the working capital peg - dollar amount, calculation method, true-up timing - in the LOI itself, not the definitive agreement.

Every failure above was visible before the LOI. Sellers who diligence themselves through the lender's lens - before they list, before they engage buyers - close at higher multiples, with faster timelines, and with fewer last-minute concessions. The work costs weeks up front and saves months at the back end.