Most founders expect a business sale to fall apart because of one major problem.

More often, the damage comes from a series of smaller issues that begin to tell a larger story.

An employment concern may be manageable. So may a missing customer contract, incomplete intellectual property documentation, customer concentration, or financial records that need to be cleaned up.

Individually, these issues may be fixable.

But when a buyer finds problems in several areas of the business, the concern is no longer limited to the individual issues. The buyer begins to see a pattern—and that pattern can change how the entire company is viewed.

Buyers Do Not Expect Perfection

Sophisticated buyers understand that every company has problems. They are not necessarily looking for a flawless business.

They are trying to understand how the business is managed.

When buyers uncover one isolated issue, they ask questions. When they find incomplete documentation or unresolved concerns throughout the company, they begin to wonder what they have not discovered yet.

That is when confidence starts to erode.

The buyer may become more cautious. Negotiations may get harder. Escrows may grow larger. Earnouts may become more likely. The valuation may change. In some cases, the buyer may decide to walk away.

Not because of one specific problem, but because the problems collectively created too much uncertainty.

Buyers Can Price Risk. They Struggle to Price Uncertainty.

A known risk can be evaluated. The buyer can determine its potential cost and address it through the purchase price or deal terms.

Uncertainty is harder.

If the buyer cannot confidently determine the scope of the problems—or whether more problems are waiting to be discovered—it becomes much more difficult to evaluate the business.

That uncertainty can quickly become more damaging than any one diligence issue.

What Story Is Your Business Telling?

Every diligence issue tells the buyer something about your company.

Missing agreements may raise questions about how relationships are documented. Incomplete intellectual property records may raise questions about ownership. Messy financials may raise questions about whether the buyer can rely on the numbers.

The strongest businesses are not necessarily those without problems. They are the businesses whose leaders know where the problems are, address what they can, and avoid leaving buyers to uncover a pattern on their own.

If you are considering a sale in the next few years, preparation gives you the opportunity to identify those patterns before a buyer does.

Download our complimentary Deal Readiness Checklist to begin reviewing the areas of your business that are likely to receive attention during due diligence.

The information provided in this article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by virtue of this article. For specific legal advice related to your situation, please consult with a qualified attorney.