Axial’s 2025 Dead Deal Report found that nearly half of all business sales fall through during due diligence, the stretch where a serious buyer goes through a company’s books, contracts, and operations in detail. Sometimes the numbers don’t hold up under that kind of scrutiny, and other times a problem or liability surfaces that nobody saw coming. More often, it’s a mix of both.
If you plan to sell your business someday, knowing where sales tend to break down lets you fix those weak spots long before a buyer finds them. Here are four common reasons a business deal fails in due diligence, starting with those that are often easier to address.
1. Emotion, Legacy, and Family Ties
When you’ve spent years building a business, you care about what happens after you leave.
You might want to keep the company name or make sure family members still have their jobs. Having a say in major decisions after the sale could matter to you, too.
One of the business sale pitfalls owners don’t always anticipate is bringing up these expectations after an offer has already been made. The new owner expects to make their own decisions, and those conditions can complicate the deal.
Before listing, have a family conversation. Decide which two or three conditions matter most so potential buyers can consider them from the beginning.
Family payroll deserves attention, too.
Say a relative earns $90,000 for a role that would typically pay $60,000. That extra $30,000 could count as an add-back. This means the business’s earnings could be adjusted to reflect what it would cost to hire someone else for the same job.
But a buyer won’t necessarily accept that adjustment. You’ll need records showing that the position could be filled for $60,000 and that the higher salary won’t continue after the sale.
If preserving the legacy matters most, selling to family, arranging a management buyout, or exploring an employee stock ownership plan (ESOP) could offer another path.
2. The Asking Price Is Too High
Owners know how much work they’ve put into their companies and what they believe they can achieve in the coming years.
Buyers want to see what the numbers currently support.
Imagine a business that’s been growing 30% annually. It earned $200,000 last year, and the owner expects earnings to reach $260,000 next year.
The owner wants the sale price based on that $260,000 projection. But the buyer is looking at the $200,000 the company has already earned.
Both have a reason for their expectations, but there’s a gap between them.
One option is an earnout, where part of the purchase price depends on the business reaching agreed-upon results after closing. If the seller refuses that arrangement and the buyer won’t pay for projected growth upfront, the deal could end there.
Before settling on an asking price, here’s what can help you understand what your business is worth:
- An independent valuation from a qualified professional
- Financial reports covering the past 12 months and the two years before that
- A breakdown of which products or services generate the most profit
- Records that explain any adjustments made to the reported profit
The U.S. Small Business Administration also recommends establishing a business’s value before marketing it to buyers. A buyer might be willing to pay more for expected growth, but they’ll still want to see how the company is performing today.
3. The Business Depends Too Much on Its Owner
Many owners spend years handling nearly every part of their business themselves.
They handle major customers, approve bills, make hiring decisions, and know how to solve problems nobody else has dealt with.
But what happens when that person leaves?
Say a service business owner personally manages its three largest customers, who account for 60% of annual revenue.
If nobody else has an established relationship with those customers, how can the buyer be confident they’ll stay after the sale?
The same applies to daily operations. If procedures exist only in the owner’s head, the buyer has to figure out how to replace that knowledge.
A company might look profitable on paper, but if the new owner has to take over every responsibility personally, they’re buying themselves a full-time job. That’s something they’ll factor into their offer.
Start by listing the tasks only the owner handles. Choose one each month to document and hand off.
Financial tasks are a good place to look. If the bookkeeper and another team member can handle invoicing, bill approvals, and the monthly close without relying on the owner, there’s less for a new owner to take over personally.
Having a second point of contact for major customers can also help make the transition easier.
The less a business depends on its current owner, the easier it is for a buyer to see how things could continue after the sale.
4. Financial Statements That Don’t Match
A buyer is reviewing your financial statements and sees $1.2 million in annual revenue. They compare that number with your bank deposits and tax returns, but the amounts don’t match.
Does that mean something is wrong with the books?
Not necessarily. There are legitimate reasons why financial reports show different amounts.
For example, your business uses accrual accounting and sends a customer a $25,000 invoice in December. The customer pays in January.
That $25,000 counts toward December’s revenue because that’s when the work was completed and the income was earned. But the money doesn’t appear in your bank account until January.
So when someone compares December’s revenue with the bank deposits, there’s a $25,000 difference. The invoice and payment records explain where that difference comes from. Harmoney’s financial statements guide explains how timing can affect what appears in different reports.
Buyers also want to know what the business still owes or needs to take care of. These are called liabilities and can include loans, leases, unused gift cards, unpaid sales taxes, tax returns that haven’t been filed, unresolved disputes, and long-term contracts.
Now say the buyer discovers $18,000 in unpaid sales tax from two years ago. There could be penalties and interest on top of that amount, but now the buyer has another question: Did you know about the unpaid taxes before putting the business up for sale?
If the answer is yes, and that information wasn’t shared, the buyer might start wondering what else they haven’t been told.
Most businesses have outstanding obligations, and buyers know that. But unexpected debts and missing information are red flags during business due diligence, especially when the seller knew about them and didn’t say anything.
If you’re preparing to sell, it’s also worth reviewing your books before putting the business on the market so you know what needs attention ahead of time. Check what’s still owed, including any outstanding state tax filings, and make sure those amounts are reflected in your records so you can answer questions before they become a problem during the sale.
What Should Massachusetts Business Owners Check Before Due Diligence?
For Massachusetts businesses, checking state tax records is an important part of preparing for a sale. The Massachusetts Department of Revenue explains which tax documents you might need and when.
Here’s what buyers will want to check:
| Buyers check | What owners can review |
| Revenue and deposits | Can differences be explained? |
| Financial statements and tax returns | Are adjustments documented? |
| Loans and leases | Are balances and terms recorded? |
| Sales tax | Are required filings current? |
| Customer obligations | Are deposits and unused gift cards accounted for? |
If your bookkeeping records need work, Harmoney’s guide to catch-up and cleanup bookkeeping explains what that process involves.
Frequently Asked Questions
Business sales often fall through when buyers find financial discrepancies, unpaid debts, or other issues that weren’t disclosed earlier. A deal can also fall apart when the financial records don’t support the asking price.
Buyers typically ask for financial statements, tax returns, bank statements, loan details, and records of outstanding debts. They may also want to review customer contracts, leases, and other agreements to understand what they’re taking on.
It depends on the type of sale and how your business is structured. Massachusetts has specific tax compliance requirements for certain transactions. The Massachusetts Department of Revenue explains when a Certificate of Good Standing or Corporate Tax Lien Waiver is needed. Your CPA or attorney can help you determine what applies to your sale.
Get Your Numbers Ready Before a Buyer Asks
Before putting your business up for sale, take a look at what your financial records are telling you. Do the numbers match your bank statements and tax returns? Is there anything a potential buyer might question?
Choose the next step that fits where your books are today:
- Get your books caught up with GleamUP if they’ve fallen behind
- Keep them current with monthly bookkeeping so the numbers a buyer sees are numbers you can stand behind
- Book a call with our team to talk through what needs attention, or to get an introduction to a local business broker or valuation expert we trust
