The letter of intent isn't the finish line. It's the moment a buyer starts checking whether the story matches the numbers.
Picture two founders who sign nearly identical letters of intent on the same day. Same industry, similar revenue, the same headline multiple. Ninety days later, one closes on schedule while the other watches the deal unravel over a working capital dispute neither side saw coming at signing. Same starting point. The outcome was decided entirely by what happened in the ninety days after signing.
For founders 12–36 months from an exit, that gap is the part almost no one prepares for. Most of the attention in exit planning goes toward getting an offer: the valuation, the buyer conversations, the signed letter of intent. What kills an M&A deal, though, usually happens after that page is signed, in the final 90 days of a business sale, when the buyer stops evaluating the story and starts testing it.
Founders who have been through a sale before know the LOI is not the finish line—it’s only the entry ticket. Once signed, it gives the buyer exclusivity, access to the business, and the opportunity to examine the details before wiring a single dollar.
That is when the process shifts from selling the story to testing the business. Operational, financial, and legal due diligence begin in earnest, often including a Quality of Earnings review that traces the numbers in the deal materials back to the underlying records. Buyers are no longer reacting to a pitch; they are looking for inconsistencies, unsupported assumptions, and hidden risks.
Most deals do not collapse because of one catastrophic number. They unravel because of dozens of smaller issues that were never surfaced, explained, or corrected early enough. That is why diligence usually gets harder, not easier, as the deal moves toward closing.
Research on information frictions in acquisitions backs this up: buyers typically uncover only a fraction of what founders actually know about their own businesses, and that gap is exactly why diligence gets more adversarial as it goes on.
The pattern holds across founder-led, lower-middle-market deals too. Attorneys who’ve watched deals fail after the term sheet consistently point to the same handful of causes: undocumented contracts, financial records that don’t tie out, and gaps between what was represented early and what diligence turns up later.
As M&A attorney Nancy Stabell puts it, “Due diligence is where a transaction earns its price.”
When those gaps surface, the outcome is rarely a clean handshake. It’s a renegotiated purchase price, a longer timeline, or a buyer who walks.
Quality of earnings (QoE) issues are the most common reason a strong-looking business gets repriced after signing.
A QoE report is what a buyer’s accountants build to test whether the earnings a founder is selling actually exist the way the seller’s numbers say they do. It re-examines revenue recognition, normalizes one-time items, and scrutinizes the EBITDA add-backs the seller has claimed: family salaries, personal expenses run through the business, discretionary costs the new owner won’t have to pay.
The LOI is not the finish line. It gives the buyer exclusivity, access, and a chance to scrutinize the business before closing.
This is where the EBITDA credibility gap shows up. Sellers arrive at a number built from add-backs that felt obviously legitimate from the inside. The buyer’s QoE team doesn’t share that context, and every add-back it can’t fully substantiate gets stripped from adjusted earnings. A dispute over $150,000 in add-backs might look small on a term sheet. At a 5x multiple, it becomes a purchase price renegotiation over three-quarters of a million dollars.
So before a business goes to market, it's worth asking: Could a stranger with no incentive to believe the seller trace every add-back to a real, provable dollar?
Research on financial reporting quality in M&A found that low-quality financial reporting increases the odds that a deal gets renegotiated or terminated after signing, and that companies whose deals failed were more likely to restate their financials once the transaction was already underway.
Somewhere between signing and closing, most deals hit a fight over working capital that has nothing to do with the price everyone already agreed on. The purchase price assumes the business will be delivered with a normal, sustainable level of Net Working Capital (NWC)—cash, receivables, inventory, and payables—at closing. What counts as normal is where the disagreement lives.
The rule of thumb: a working capital target defended with 12 months of trailing data holds up at the closing table. One built on a single strong quarter gets renegotiated.
A few specifics buyers scrutinize most closely:
There’s a reasonable case that customer concentration should not matter as much as buyers often treat it. A founder-led business with three customers responsible for sixty percent of revenue can still be strong and defensible if those relationships are long-standing, contractual, profitable, and unlikely to disappear overnight.
That argument may hold up in the boardroom. It rarely survives a buyer’s model, because the buyer is not underwriting the history of the relationship. They are underwriting what happens to that revenue after the founder steps away. If the founder is still the person managing the account, solving problems, negotiating renewals, and taking the late-night calls, the buyer sees key person risk layered on top of concentration risk.
Diligence is where that distinction becomes visible. Buyers will test contract terms, renewal history, pricing stability, customer tenure, and account ownership. They will also ask who actually manages the relationship. If the answer is still “the founder,” concentration can quickly become a valuation issue rather than just a reporting metric.
Before going to market, ask, “Could a skeptical buyer trace every add-back to a real, provable dollar in the records?”
The last discovery a buyer makes in the final 90 days rarely lives in a spreadsheet. It shows up in a hallway conversation, a CFO who starts fielding recruiter calls once word of a sale gets around, or a sales leader who goes quiet in diligence interviews while weighing their own options.
That hesitation matters more in a market like Dallas-Fort Worth, where the civilian labor force runs close to 4.57 million people. In a labor market that size, a CFO, sales leader, or operations executive who gets uneasy during a transaction has somewhere else to go, often within weeks, not months. That's the essence of key person risk and management dependency: value that exists only as long as a specific individual stays in the room.
Buyers watch for a few specific signals here:
Each one reads as a small thing on its own. Together, they tell a buyer the business depends on people who might not stay, at exactly the moment the buyer is deciding how much to pay for a business that’s supposed to run without its founder.
If you’ve been through a sale that stalled in the final stretch, none of this is news. You already know what it feels like when a number you were confident about turns into a negotiation, or when a buyer goes quiet for a week after a data room upload. The pattern above is what watching that happen from the inside actually looks like.
The businesses that survive diligence aren’t the ones with nothing to find. They’re the ones that found it first.
A Transaction Readiness Assessment (TRA) works through the same questions—the QoE-style testing, the working capital assumptions, the concentration exposure, the retention gaps—months before a buyer’s team does, while there’s still time to fix what’s fixable and document what isn’t. That’s the practical shape of M&A transaction readiness: an honest, buyer-eyed look at the business, done on the founder’s schedule instead of the buyer’s.
Founders who go through that process before signing a letter of intent still face real diligence. They just face less of it blind, which is most of what reducing M&A deal risk actually means in practice.
The gap between a signed LOI and a closed deal is where a business has to prove, line by line, that it’s what the founder said it was.
The goal isn’t to make the business fit the deal. It’s to make sure the deal still fits the business.
Warren Buffett put it more bluntly: “You only find out who is swimming naked when the tide goes out.” Diligence is the tide going out. The businesses prepared for it look the same in week eleven as they did on day one, which is what preparing a business for sale months in advance is actually for.
If you’re within a couple of years of a transaction and want an honest read on how your business would hold up under that kind of scrutiny, LVP’s Transaction Readiness Assessment is a good place to start that conversation.
John Pappanastos
Managing Partner, Lighthouse Value Partners
lighthousevaluepartners.com