Deal killers: what to watch before you commit

Dependency is the common thread running through most problem transactions. A single customer representing a third of revenue, one supplier controlling the critical input, or one individual holding the technical knowledge are all versions of the same risk.

The question is not whether dependency exists, because in SMEs it usually does. The question is what it costs to remove, how long that takes, and whether the price reflects it.

Where adjusted earnings are asserted rather than documented, the buyer is pricing a claim. Schedules, supporting evidence and a reconciliation to the filed accounts are reasonable requests at any stage.

A seller who cannot evidence an adjustment is usually telling you something about the quality of the records as a whole, which matters beyond the specific figure.

Falling revenue is obvious. What is harder to see is flat revenue with a changing mix, where the higher-margin work is being replaced by lower-margin volume. The headline looks stable while the profit engine is quietly weakening.

Splitting revenue by volume, price and mix across the period usually reveals the trend before the profit and loss account does.

Deferred maintenance and imminent asset replacement are costs that transfer to the buyer. So is a lease approaching expiry, particularly where the property is owned by the seller or a connected party.

Neither issue is fatal, but both affect price and funding, and both are easier to address before terms are agreed than afterwards.

Some deals fail for reasons that have nothing to do with the business: insufficient information, no exclusivity, competing buyers, or a timetable that leaves no room for validation.

It is worth treating process risk as a real risk. A short period of exclusive access, used well, is often worth more than a slightly better headline price.