The flaws you find first become footnotes; the ones they find become discounts.

TL;DR: A business can be profitable, growing, and still fall apart in diligence, because the problems that kill deals are almost always findable months before anyone goes looking. The cheapest way to find them is to run the diligence yourself first: mock legal, financial, and commercial reviews that surface the red flags while there is still time to fix them or write the explanation. What cannot be fixed gets handled on the term side, in the letter of intent, before exclusivity is ever granted.

I have been through more deals than I can count where the sellers were already picking out their airplanes and their Rolls-Royces and their vacation homes. Then diligence starts, and it falls apart, because the business turns out not to be sellable. I am not talking about small companies. Fifty million a year. A hundred million. Two or three hundred million. They sound great until someone looks under the hood.

One I think about often involved three partners sitting on an offer just north of two hundred million dollars. Everything was agreed. The only thing left was the buyer's diligence, and that is where it stopped. The buyer's attorneys went through the marketing and sales materials and concluded the claims and testimonials did not meet the compliance standards that applied to them. There was a fix. Rewrite the materials to be compliant. But the compliant version would have gutted the lead flow that produced the earnings everyone was buying.

The deal died. The partners scrapped their marketing entirely and started over. That took a couple of years. They did eventually sell, at close to the original offer price, which sounds like a happy ending until you count what those two years cost in time, in risk, and in the compounding they never got.

Nothing in that story was unknowable. The materials had been sitting there the whole time. The buyer's lawyers were not clairvoyant, they were just the first people who bothered to read them like an adversary.

After enough negotiations with Blackstone and KKR and firms like them, you stop being surprised. I know the things they are going to pick at, because it is the same short list nearly every time.

Founder dependency is the expensive one. If the business cannot run without you, the buyer is not buying a company, they are buying a job that happens to have your name on it, and they price it that way. In my experience that is forty to sixty percent off the top. Not a haircut on the multiple. A different valuation entirely.

Recurring revenue gets picked at because the billing model and the retention model are not the same thing, and founders routinely quote the first as if it were the second. One founder was certain he had recurring software revenue. Then someone actually looked at retention and found that seventy-four percent of his subscribers churned inside sixty days. His ten times ARR valuation became three times, on numbers that had been true all along.

Concentration gets picked at because it is the cleanest proxy for fragility there is. One customer above fifteen percent of revenue, one partner above thirty, one channel above sixty, and the buyer starts modeling what happens the month after close when that relationship notices the founder is gone.

And then there are the quiet ones that only surface under a lawyer's reading. If you are a software business and your developers are contractors overseas with no written agreements, you may not own your own code. When the diligence team asks for the contracts that prove you own it and you cannot produce them, you either go chase signatures from everyone who ever touched that codebase, or you take a giant ding.

Here is the part that costs almost nothing and almost nobody does.

Have your attorney run mock due diligence. Not a summary, not a checklist. Have them spend real time going through the entity the way an acquirer's counsel would, flagging anything out of place, so you can fix it before you are in the middle of an exit rather than during it. Do the same on the other two fronts: mock commercial diligence, mock financial diligence, mock legal diligence. Plug the holes that could kill a deal or move the price.

Have your accountant audit the last two to three years of financial statements while there is no clock running. An audit you commissioned reads very differently from an adjustment a buyer's quality-of-earnings team discovered.

The point is not to make the business perfect. It will not be. The point is that every problem has two possible futures. Either you find it first, fix what is fixable, and write a defensible explanation for what is not, or the buyer finds it cold in week six of exclusivity and prices it as a surprise. Surprises are always priced worse than disclosures, because a surprise makes the buyer wonder what else is still buried.

And this is work that pays whether or not you ever sell. Every one of these fixes makes the business run better and makes it more profitable. That is the part founders miss when they file exit preparation under someday. You are not preparing for a transaction. You are removing the reasons your own company is harder to run than it needs to be.

Some flaws cannot be resolved in the time you have. That is not a crisis, it is a negotiation, and the place to run it is the letter of intent.

Re-trades do not happen at signing. They happen in the gap between a signed LOI and a close, and the reason they work is that you have already granted exclusivity by then. Once you have, you have no other bidder and no leverage, and both sides know it.

So the terms go in before the exclusivity does. Fix the working capital peg at the LOI on a trailing twenty-four month average with a defined formula and a defined true-up, not a number to be agreed later. Cap the indemnity at a fixed percentage of enterprise value with a real survival period. Put in a kill switch, so that a material change in economic terms during diligence terminates exclusivity and frees you to re-engage the other bidders. Award exclusivity only after best and final, and only with the package attached.

That is the whole trick. Not preventing the buyer from finding things, which you cannot do. Deciding in advance what happens when they do.

The best-priced businesses I see are not the flawless ones. There are no flawless ones. They are the ones where the seller had already done the looking, and every uncomfortable thing in the data room came with a paragraph explaining what it was, when it happened, and what was done about it.

That is what makes a company the easiest yes in the room. Not the absence of problems. The absence of surprises. A buyer who never gets ambushed never has to protect themselves with the one tool they have, which is the price.

You can do that work now, on your own clock, with nobody waiting on an answer. Or you can do it in week six of exclusivity, with a term sheet cooling on the table and someone else setting the terms of the conversation.

— Roland

The people advising you on your sale don't all want the same outcome.

That's not a criticism. It's just how incentives work.

Every advisor around the table has a different job to do, a different risk to manage, and a different definition of success.

If you don't understand who is optimizing for what, it's easy to assume everyone is pulling in the same direction.

They're not.

The best outcomes happen when someone is focused on maximizing the value of the deal, not just getting it done or keeping everyone out of trouble.

Want to see why incentives matter more than advice? Watch the video below.