If you’re deep into diligence and starting to second-guess things, you’re not alone. Every buyer eventually asks themselves: Is this just cold feet? Or is it time to walk away?
In M&A, walking away can feel like failure—especially if you’ve spent months building a relationship with the seller, racked up legal and diligence costs, or made a verbal commitment to your lender. But here’s the truth: walking away isn’t losing. Sometimes, it’s the smartest move you can make.
Knowing when to cut your losses is part of being a disciplined buyer. Let’s break down the most common signals that a deal may not be worth pursuing—and how to separate real red flags from manageable concerns.
The Financials Don’t Hold Up
Let’s start with the obvious. If the numbers you based your offer on turn out to be inaccurate, inflated, or impossible to verify, that’s a serious problem.
Reasons to walk:
- Significant discrepancies between tax returns and internal financials
- Aggressive or fabricated add-backs that distort true EBITDA
- Signs of commingled personal and business expenses
- Unverifiable revenue sources (especially common in online businesses)
Not all issues here are deal-breakers, but if the core earnings picture changes meaningfully and the seller refuses to budge on valuation, it’s often time to step back.
The Seller Isn’t Being Transparent
When sellers start withholding information, delaying document delivery, or getting defensive about basic questions, that’s a major red flag.
Look out for:
- Evasiveness around customer churn, revenue sources, or liabilities
- Reluctance to share employee or vendor contracts
- Pushback on providing access to financial systems or key staff
Diligence depends on transparency. If you sense the seller is hiding something, they probably are. And that “something” usually isn’t good.
The Business Is Overly Dependent on the Owner
A certain amount of seller involvement is expected—especially in SMBs. But if the seller is the sole decision-maker, rainmaker, and problem-solver, you’re not buying a business. You’re buying a job.
Walk-away scenarios include:
- No documented SOPs or training processes
- No second-in-command or operational leadership
- Seller reluctant to offer a meaningful transition period
In these cases, the post-close risk is high. If the seller walks and the business walks with them, your investment could collapse.
There’s Misalignment on Deal Terms
Even if you agree on price, structure matters. If the seller insists on terms that overexpose you to risk—and won’t compromise—it may be time to move on.
Examples:
- Refusal to offer seller financing or escrow holdbacks on an unproven business
- Insistence on an earnout when earnings are unclear or hard to measure
- No flexibility on working capital pegs despite volatile cash flow
When structure doesn’t align with the risk profile, you could end up inheriting more downside than you bargained for.
Diligence Reveals Material Liabilities
Sometimes it takes getting under the hood to see what’s broken. Diligence may uncover issues that fundamentally change your risk exposure.
Possible deal-killers include:
- Hidden tax liabilities or pending litigation
- Regulatory noncompliance with potential fines
- Uninsured risks, such as a lack of cyber liability coverage for online businesses
- Operational liabilities, like deferred maintenance or neglected tech infrastructure
If these issues require significant capital or time to resolve—and weren’t baked into the price—you’re likely better off walking.
The Business Doesn’t Match Your Skill Set or Goals
Even a “good” business can be the wrong business for you.
Examples:
- A hands-on retail operation when you were looking for a remote or passive investment
- A turnaround situation when you lack operational turnaround experience
- A niche industry with regulatory complexities outside your comfort zone
Buying a business is a lifestyle shift. If you can’t picture yourself leading or growing this company, it’s better to pause now than regret it later.
The Market or Industry Has Shifted
Deals sometimes drag on. And in the meantime, market conditions can change.
Watch out for:
- A sudden drop in demand for the business’s core product or service
- Regulatory changes that affect profitability or licensing
- Entry of aggressive competitors or changing technology trends
If the market fundamentals change significantly during diligence, reassess whether your original investment thesis still holds.
You’re Losing Trust in the Process
This one’s more subjective—but still valid. If you start feeling like you’re always chasing clarity, pushing uphill, or managing drama, ask yourself:
Is this a preview of post-close life?
Trust your gut. A deal that drags, stalls, or constantly changes shape may be telling you something. And it’s usually: walk away.
When NOT to Walk Away
Of course, not every bump in the road is a deal-breaker. Sometimes, buyers pull the plug for the wrong reasons:
- Cold feet: Fear of the unknown is natural. But risk is part of the game. Don’t confuse healthy nerves with legitimate red flags.
- Perfectionism: Every business has flaws. If you’re looking for a perfect company with no issues, you may never close a deal.
- Minor issues blown out of proportion: Don’t let a small contract discrepancy or employee misclassification tank a fundamentally solid business. Context matters.
Work with your diligence team or deal advisor to distinguish between “fixable” issues and true deal-killers.
Final Thoughts
Walking away from a deal isn’t a failure. It’s discipline. It means you know what you want, what you’re willing to risk, and when the numbers or dynamics no longer make sense.
In M&A, you don’t get points for closing bad deals. You get rewarded for making smart ones.
So if the red flags are adding up, the trust is eroding, or the risk no longer feels reasonable—listen to your gut. Walking away may be the best decision you make as a buyer.
Contact us today or book a free consultation and learn how we can be a trusted partner on your next deal!
