Red flags that quietly lower a sale price

Price is usually agreed early and eroded later. The reductions rarely come from anything dramatic. They come from small things a buyer finds in diligence that make future earnings less certain.

The example

A specialty distribution business with $4.1M in revenue and $610K in SDE receives an offer at 3.8x, about $2.32M, subject to diligence. Four issues surface over the following weeks.

Customer concentration that grew quietly

The top account has drifted from 12% of revenue to 27% over three years, on a purchase-order relationship with nothing in writing. A buyer does not treat that revenue the same way. Discounting the concentrated portion pulls something like $45K out of the earnings figure a buyer will underwrite.

Inventory that does not reconcile

The balance sheet carries $520K of inventory. A count finds roughly $70K that has not moved in two years. That is a direct reduction in what is being purchased, and it also raises a question about every other number in the file.

Deferred maintenance

Two delivery trucks and a forklift are past useful life. Replacement runs about $140K in the first eighteen months. A buyer treats that as price, because it is spending they inherit on day one.

Undocumented add-backs

About $55K of the SDE calculation rests on expenses the owner describes as personal but cannot show cleanly in the records. At 3.8x, that removes roughly $209K of value.

What it adds up to

None of these are scandals, and none of them broke the deal. Together they moved the price from about $2.32M toward $1.95M. Every one of them was fixable a year earlier at a fraction of the cost: a written supply agreement, an inventory write-down, a maintenance plan, and a bookkeeper separating personal spending from company spending.

The pattern is consistent. The cheapest time to fix a diligence problem is well before a buyer is looking for it.