If you’re in the SMB trenches long enough, you’ll notice a pattern: getting to an LOI is easy compared to getting to close. Deals die quietly from preventable issues, fuzzy assumptions, timeline drift, mismatched expectations, or lenders uncovering concerns that buyers should have caught. None of this is glamorous, but it’s exactly where real money is lost or saved.
Here’s why so many SMB deals don’t make it across the finish line, and what disciplined buyers do differently.
1) Incomplete pre-LOI work
Many buyers rush to “park the deal” with an LOI and leave the hard questions for later. That loads risk into diligence and gives you less leverage if assumptions shift.
Typical symptoms
- Surprise customer concentration or at-will contracts discovered mid-diligence
- Aggressive add-backs with thin support
- Working capital needs that don’t match the seller’s narrative
What to do instead
- Ask for a short pre-LOI package: top-10 customers with terms, 24 months of monthly P&Ls, AR aging, basic debt schedule.
- Run fast filters: largest % and top-3 % of revenue; quick “what-if” on losing the top account; sketch a trailing working capital view (AR + Inventory – AP).
- Pre-wire structure: if you already know concentration is real, flag a seller note or retention-tied earnout in the LOI so it’s not a surprise later.
2) Vague LOIs that invite reinterpretation
An LOI that says “price based on EBITDA” without defining EBITDA or working capital is a future argument. When diligence moves the numbers, the seller hears “retrade.”
Typical symptoms
- Last-week fights over what’s included in working capital
- Endless debates about which add-backs “count”
- Seller shock when you propose structure changes
What to do instead
- Define Adjusted EBITDA at a high level: GAAP EBITDA ± agreed categories, subject to independent QoE.
- Write the working capital mechanics: formula, method (TTM average), collar, and 60-day true-up.
- Signal structure early: mention seller financing and the concept for any targeted earnout or escrow tied to specific risks.
3) Weak project management
Small deals still need real coordination. Without a plan, tasks pile up, exclusivity burns down, and trust erodes.
Typical symptoms
- Missed data room uploads and unclear responsibilities
- Advisors working in parallel without a single checklist
- Deadline extensions that become the norm
What to do instead
- Run a one-page close plan: owners, dates, status for legal, QoE, tax, insurance, lender, and third-party consents.
- Hold a weekly 30-minute checkpoint: buyer counsel, QoE lead, and lender on the same call.
- Tie exclusivity to milestones: automatic extensions only if the seller delivers what’s due.
4) Add-backs that collapse under light pressure
Adjusted EBITDA is where optimism meets reality. If the seller’s add-backs rely on costs you’ll reintroduce, expect a stall.
Typical symptoms
- “One-time” legal or consulting that shows up every year
- Owner comp add-backs that ignore replacement cost
- EBITDA boosted by temporary cuts to marketing or maintenance
What to do instead
- Map every add-back to paper: payroll, invoices, contracts. No doc = no add-back.
- Price the replacement, not the removal: if you need a GM at market pay, adjust accordingly.
- Normalize deferred spend: fold necessary marketing or maintenance back into your model.
5) Working capital surprises
More than a few deals die when someone finally checks AR aging or walks the inventory.
Typical symptoms
- Aged receivables that look collectible until you sample them
- Slow-moving or obsolete inventory not reflected in book value
- AP stretched pre-close to “juice” cash
What to do instead
- Set the peg early: use a trailing average, adjusted for anomalies.
- Clean the inputs: discount aged AR, remove dead stock, normalize stretched AP.
- Document in the LOI: definition, peg method, collar, true-up. Close becomes math, not a debate.
6) Customer concentration and transfer risk
Buyers discover late that the top customers are at-will or personally tied to the owner. Lenders get nervous. Sellers push back on price drops. Momentum fades.
Typical symptoms
- Near-term renewals for outsized customers
- Owner-only relationships with no transition plan
- Pushback on contacting key accounts during diligence
What to do instead
- Quantify early: largest % and top-3 %, contract terms, and who owns each relationship.
- Use structure, not just price: a fair multiple haircut plus an earnout or holdback tied to gross profit from named accounts.
- Paper transition duties: hours, joint meetings, introductions, and handoff artifacts.
7) Key person risk with no handoff
Many founder-led businesses run on tribal knowledge. Without a committed handover, buyers see execution risk and lenders see management risk.
Typical symptoms
- No #2 in command, no SOPs
- Owner controls pricing and hiring decisions
- Seller wants a quick exit with little transition support
What to do instead
- Make the risk visible: decision-rights map and simple SOP inventory during diligence.
- Tie dollars to transfer: a slice of consideration held back or paid via seller note while the handoff happens.
- Define support: weekly hours for 90–180 days, with specific responsibilities.
8) Deferred revenue and revenue timing issues
When revenue recognition and cash collection don’t line up, tempers flare and models wobble.
Typical symptoms
- Billings called “revenue” in materials
- Large deferred revenue at close with no plan for cost-to-fulfill
- Lumpy recognition that hides margin reality
What to do instead
- Separate billings from revenue: get a deferred revenue rollforward.
- Exclude deferred revenue from the peg: handle it with a cost-to-fulfill adjustment if material.
- Align costs to delivery: avoid annualizing a flattering month.
9) Financing friction and late lender involvement
Sidelining your lender until the eleventh hour is a classic way to stall. Credit teams dislike surprises even more than you do.
Typical symptoms
- Last-minute underwriter questions on seasonality, concentration, or working capital
- Recut terms after the commitment letter
- Extra covenants that spook the seller
What to do instead
- Share early, share often: send the lender your preliminary model, concentration snapshot, and working capital approach.
- Use QoE outputs in underwriting: validated EBITDA and a recommended peg with collar show you’re organized.
- Confirm subordination: ensure seller note terms fit bank requirements before you promise anything.
10) Third-party consents and “small” legal obstacles
Landlord consents, customer assignability, lien releases, or licensing gaps can eat weeks and kill momentum.
Typical symptoms
- Landlord slow-rolls consent or demands security
- Key customer contracts prohibit assignment without approval
- UCC surprises or missing corporate formalities
What to do instead
- Identify early: list all leases, top contracts, and permits; note consent or assignment requirements.
- Start the process before the APA is final: draft consent letters and line up who will ask.
- Create fallbacks: subleases, new agreements, or side letters where practical.
11) Timeline sprawl and deal fatigue
Time doesn’t just kill deals; it changes them. Teams get distracted, narratives drift, and one small hiccup becomes an excuse to walk.
Typical symptoms
- Rolling exclusivity with no milestones
- Diligence requests unanswered for weeks
- Parties stop talking and start assuming
What to do instead
- Run a tight calendar: target close date with weekly deliverables and a clear owner for each.
- Escalate quickly: if an item is blocked, get principals on a call within 48 hours.
- Watch tone: keep conversations future-focused and solution oriented. People close deals; paper records the outcome.
12) Misaligned expectations on risk sharing
Sometimes both sides are right: the business is good and there is real risk. If one party insists on price only, the other on structure only, stalemate follows.
Typical symptoms
- Seller resists any seller financing or holdback on a concentrated book
- Buyer demands a deep price cut for a bounded issue that a specific escrow could solve
- Earnouts proposed on hard-to-measure metrics
What to do instead
- Solve bounded issues with bounded tools: escrow for a tax exposure, earnout for named-account retention, seller note for alignment.
- Keep metrics simple: revenue or gross profit for specific accounts, not complex “Adjusted XYZ.”
- Offer options: two or three credible packages that reach the same economic outcome.
A simple close plan you can copy
Use this as your one-page tracker from LOI to close:
- Financials/QoE — provider engaged, issues list by Day 7, final by Day 21–28
- Working capital — definition set, TTM peg calculated, collar agreed, draft schedule shared
- Legal — draft APA by Week 2, third-party consent list created, consent requests out by Week 3
- Lender — model shared Day 3, underwriting materials sent Week 2, conditions list tracked
- Risk items — concentration plan, transition support draft, deferred revenue mechanics, tax/sales-tax review
- Structure — seller note terms confirmed with bank, earnout framework defined, escrow amounts/conditions set
- Exclusivity — 45–60 days with checkpoint extensions based on seller responsiveness
- Communication — weekly standing call, owner-level escalation within 48 hours on blockers
Pin this plan to the top of your data room and run it like a project. Deals don’t fall apart because people are malicious. They fall apart because ambiguous plans meet real risk without a path forward.
Bottom line
Most SMB deals that fail do so for predictable, fixable reasons: soft pre-LOI work, fuzzy LOIs, lack of project management, shaky add-backs, messy working capital, transfer risk that isn’t shared, late lender involvement, or small third-party issues left to the end. You don’t need heroics to beat those odds. You need a clearer LOI, a disciplined checklist, and a willingness to use structure to match price to risk.
Get those basics right and more of your signed LOIs will become closed, durable acquisitions—the kind that perform the way your model expects when the first payroll hits your account.
Contact us today or book a free consultation and learn how we can be a trusted partner on your next deal!
