The Problems You Know About Are Not the Ones That Cost You

The weak spots you already know about will be fine in a sale. You have lived with them for years and you have an answer ready. The ones that cost money are the ones a buyer finds that you never saw, because you meet them for the first time in diligence, on somebody else’s clock, where the only answer that counts is a document.

Your list is shorter than theirs

Ask any owner what a buyer will pick at, and they can name three things straight away. The customer who is too big a share of revenue. The margin that has slipped. The second-in-command who is not quite ready.

A buyer will raise all three. Then they keep going, because their list is longer than yours. What moves the price is the part of their list that is not on yours. Those items are not worse than the ones you know about. They are simply new to you, and “I’ll have to look into that” is a true and reasonable answer that is also the most expensive sentence you can say in a sale.

What diligence actually is

A buyer is not reading your company to admire it. Everything you tell them becomes a claim, and diligence is the work of checking claims against paper.

That is why the findings are rarely dramatic. A buyer does not usually uncover fraud. They find that the revenue figure in the summary includes a customer who has since left. That an add-back on the schedule has no receipt behind it. That a lease has eleven months to run. That the person everyone calls the operations director has no employment agreement. That what the team calls a contract is a purchase order.

Each finding is small. Together they do two kinds of damage. They come off the price. Worse, they change what the buyer is willing to believe about everything they have not checked yet. What happens in that stretch from the buyer’s side is described in what a buyer actually does between the handshake and the money.

Where buyers look

Earnings. Not what your statements say, but what survives a stranger recalculating them. The expenses you can add back, and the ones you only think you can covers the most common gap.

Revenue that lasts. Who the customers are, how concentrated they are, what is signed, and what renews without anybody chasing it.

Dependence on you. What stops if you are unreachable for a month.

The paper. Leases, licenses, loans, liens, personal guarantees, employment agreements, and anything with a change-of-control clause.

Exposure. Insurance that would actually pay out, open or threatened claims, regulatory standing, and registrations in the states where you have people or customers.

Reporting. Whether somebody other than you can produce the numbers on request, in a form that ties to the financial statements.

The registration nobody had filed

Illustrative. Carmen runs a software company selling inventory tools to independent retailers, with customers in most states and a dozen employees working remotely in six of them. She expected a buyer to focus on her largest reseller and on the fact that she still approved every discount. Both were on her list.

Not on her list was sales tax. Her company had collected and filed only in its home state for years. As the customer base spread and remote hires settled in other states, the company had quietly picked up obligations to register and collect elsewhere, and nobody had looked.

Carmen found it three years before she went to market, because she had someone go through the company the way a buyer’s tax team would. She registered, filed what was owed, and used voluntary disclosure where it was available to limit penalties. Found in diligence instead, the same gap would have arrived as an open-ended liability with years of exposure attached, priced by a buyer who had every reason to assume the worst.

Why you cannot find it yourself

You can probably name two of your weak spots right now, and you are probably right. Naming the third is hard for a structural reason, not a personal one: nobody can write a list of their own blind spots.

That is why this work needs another set of eyes, and why it needs to happen years before a sale rather than during one.

An M&A advisor, early. Under confidentiality, many advisors will talk with you about what your company is worth and what buyers in your market react to, years before you sell, at no cost. That conversation is worth more than it sounds, because they have heard what buyers ask a thousand times.

A full review, when you want the whole picture. Nobody reconciles revenue, tests add-backs, or reads every lease for free. The complete version, worked category by category and documented, is a paid engagement. It is also the cheapest form this work ever takes, because the alternative is a buyer doing it in diligence and charging you for it in the price.

What finding out late costs

An owner who does this three years out works from one list. The problems they already knew about get fixed, which was going to happen anyway. The ones they had never seen get fixed too.

An owner who meets the buyer’s list for the first time in diligence answers both halves at once, on a deadline, to somebody pricing every answer as it arrives. That is often where deals start to slip, a pattern described in deals do not die over money; they die at ninety-five percent.

The findings do not get smaller for arriving late. They just get paid for.

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This is what we do. Prism Edge goes through your company the way a buyer’s diligence team will, years before one does: earnings, revenue quality, dependence, the paper, exposure, and reporting. You get one documented list, in order of what it would cost you, while there is still time to fix it.

The full chapter on seeing your company through a buyer’s eyes, including the paid-off loan that killed a deal days before closing, is in Enhancing Your Business Value, free to download here.

General information, not legal, tax, or financial advice, and no advisor relationship is created by reading it. Rules change and the specifics of your situation matter. Always consult your own attorney and accountant before acting.