8 min read · 1,086 words
At a glance
- Deals rarely die on price. They die when a buyer’s analyst finds something in the numbers he can’t reconcile, and every figure after that gets read with suspicion. Believable numbers protect the multiple from diligence discounts.
- The five findings that re-trade a deal are predictable, and every one of them is fixable before a buyer ever opens the data room. Found early, they’re housekeeping. Found in diligence, they arm the buyer.
- For advisors, brokers, bankers, and attorneys: the fastest way to protect a deal you’re about to run is to send the owner in with numbers that survive the read. We are the one advisor in the deal who is not paid on the deal.
If you sit on the deal side, you already know the pattern. A process starts strong, the price is agreed in principle, and then diligence turns up a thread nobody prepared for and the whole thing slows, re-trades, or dies. This piece is about the specific findings that cause it, and why the seller controls almost all of them if the work is done early enough.
Why do deals die in diligence and not in negotiation?
Because negotiation is about a number both sides believe, and diligence is where the buyer finds out whether he can. A price agreed on a story is not a price. It is an option the buyer holds until the data confirms the story, and the moment the data doesn’t, he re-prices from a position of strength while the seller is emotionally committed and out of room.
The failure is almost never fraud. It is that the seller’s numbers were built to record the past, not to survive a stranger proving the future. Everyone who touches the books closes the month. Nobody was making the company worth believing. The gap doesn’t show until a trained buyer’s analyst goes looking, and by then it is the buyer’s advantage, not the seller’s problem to fix quietly.
What are the five findings that re-trade a deal?
They are remarkably consistent across deals. In the order a buyer’s analyst tends to find them:
- A margin that moves when you look closely. Gross margin that swings month to month, or a blended number that falls apart when split by product or customer, tells a buyer the earnings aren’t understood. He discounts what isn’t understood.
- Revenue recognized inconsistently. The same kind of sale booked one way early in the year and another way later. Every dollar may be real, and the top line still becomes untrustworthy, because a buyer can’t tell which policy the trend was built on.
- Add-backs that don’t survive. Owners routinely present a long list of adjustments to earnings, and a buyer strikes half of them on sight. A short, defensible schedule raises the believable number. A padded one lowers it and costs credibility on everything else.
- Cash and revenue that don’t tie out. Money received and never matched to what it was for, or a working-capital picture that can’t be reconstructed, forces a buyer to assume the worst and price it in.
- A company that can’t run without the owner. When diligence reveals every pricing, hiring, and customer decision runs through one person, the buyer re-rates the risk and the multiple, because he is buying dependence, not a system.
Every one of these is a seller-side problem with a seller-side fix, and every one is cheaper to solve before the process than to concede during it.
Who actually controls the outcome?
The seller does, and earlier than anyone treats it. Each of the five findings can be cleared before a buyer is ever in the room: the costing corrected so margin tells the truth, the revenue policy made consistent and documented, the add-back schedule built to a standard a buyer will accept, the cash reconciled, and the owner pulled far enough out of the daily decisions that the business reads as an asset.
The catch is timing. This is trailing-track-record work. A buyer wants twelve months he can believe, so clearing the findings in the same quarter you go to market doesn’t help the trend a buyer reads; it just documents that the problems were recent. The sellers who clear diligence cleanly did the work a year or more ahead, on purpose, before there was a buyer applying pressure.
For advisors, brokers, bankers, and attorneys
If you run deals, the seller’s unready numbers are your risk too. A re-trade or a collapse in diligence costs you the fee, the timeline, and the client’s confidence, and it usually traces back to numbers the owner could never quite stand behind. The move that protects the deal is getting that work done before the process starts, by someone whose only job is to make the numbers believable.
That is the position we hold on purpose. We do not sell companies, solicit buyers, negotiate terms, or take a cut of the deal. We are the one advisor in the deal who is not paid on the deal, and our fees are tied to the value created, never to the deal. That independence is the product: it is why an owner and a buyer’s analyst can both trust what we put on the page, and why an advisor can bring us in without introducing another party angling for a piece of the close.
Where to start
Whether you’re an owner circling a sale or an advisor about to run one, the first move is the same: find out which of the five findings are sitting in the numbers today, and clear them while there’s still time to do it away from a buyer’s eyes. That connects to the rest of the exit picture directly: whether the numbers are believable at all, growing what the company is worth before the sale, and when the clock on believable numbers starts.
The Sellable-Numbers Scan is built to surface exactly this. In 14 days, in dollars, we show what a buyer would re-price and where the value is trapped, plus the first three moves. For owners, the guarantee is simple: at least 3x the Scan fee in owner-accepted value identified, or you pay nothing.
If you’re an owner, book a fit call. If you run deals and want to talk about protecting a specific one, book the same call and tell us the deal. Thirty minutes, no pitch either way.
Russell Fette · Decisive Finance · Creator of Financial Rhythms™