Business Sale Problems After the LOI: What Sellers Should Do
A problem that pops up in month four of your business sale usually isn’t any bigger than the one you handled back in month one. What’s different is how many good options you still have when it appears.
If you spot a missing customer contract six months before you go to market, it’s just a paperwork fix. You pick up the phone, get the document signed, and move on. No drama.
But if that same contract is missing three weeks before closing, it’s a different story. Now the buyer is counting on that revenue, and their attorney starts asking tough questions. Is the agreement enforceable? Can it be assigned? Does a change of control trigger anything? Suddenly, you’re scrambling for customer consents, new agreements, extra protections in the purchase agreement, or even a price adjustment. The contract itself hasn’t changed in six months. What’s changed is your position.
That’s what late-stage deal problems often look like. The real question isn’t how severe they are, but why they show up when they do, what’s different when they land in month four, and what you can actually do about it when one lands in your lap.
Late Issues Come From Three Places, and They Don’t Call for the Same Response.
It’s easy to think every late problem is something the buyer dreamed up. Sometimes that’s true, but not always. The right response depends on what kind of issue you’re really facing.
1. Some work cannot be completed until a buyer is identified and the definitive agreement is underway.
Final disclosure schedules, formal consent requests, lender approvals, and closing calculations occur later in the process. The seller can still prepare the underlying records, identify consent requirements, and agree on methodologies well before closing.
The clearest example, and the one that costs sellers the most money, is the working capital peg. The buyer is acquiring a business that needs a certain amount of working capital on hand to operate through one cash cycle: receivables to collect, inventory to sell, payables coming due. The peg is the target they expect to be delivered at closing, usually built from a trailing average of your own balance sheet. The purchase price is typically adjusted up or down based on the difference between actual closing working capital and the agreed target, subject to the transaction’s specific mechanics.
None of that is a buyer trick. It’s a standard part of the process. The working-capital target should be negotiated before or at signing, using historical balance sheet information and agreed-upon accounting rules. The actual working capital delivered is measured at closing and often finalized through a post-closing true-up. That is why the methodology, included accounts, accounting principles, and dispute process should be settled early—not during closing week.
The peg is also more negotiable than most sellers realize, which is why it belongs with your M&A advisor and your accountant rather than your bookkeeper. Start with the averaging period, since a seasonal business measured across the wrong twelve months produces a target it can’t hit at closing. Then look at what’s being counted, because receivables you’re never collecting shouldn’t sit in a number you have to deliver against, and neither should inventory that hasn’t moved in two years. Then the true-up afterward, since how quickly a dispute gets resolved, and by whom, matters as much as the target itself.
2. Some issues simply pile up over time.
There’s no single moment when they become a problem. Maybe it’s an extra representation in one draft, a longer survival period in the next, a bump to escrow after that. Each request seems minor and reasonable on its own. But by the fourth or fifth, you’re looking at real money, and it’s tough to push back because every single ask looked fair by itself.
The trap is looking at each request individually while the buyer tracks the total. Don’t answer item by item. Add up everything that’s changed since the letter of intent (LOI)—dollars where you can, risk where you can’t—and put the whole picture on the table at once. My rule is simple: nothing is free. If the buyer wants an extra warranty, something else should move in your favor.
3. Some issues get raised late on purpose.
This is the category sellers assume is always in play, and it’s the least common of the three. But it’s still real. A supposed discovery that's been sitting in the data room for weeks. An extension request with no revised schedule attached. Ten days of silence followed by manufactured urgency. (I've written separately about how to tell a legitimate retrade from gamesmanship, and the same test applies to anything that lands late.)
Your best defense is what you disclosed and when you disclosed it. I’d rather put a known wart in the Confidential Information Memorandum (CIM) and explain it properly than have a buyer find it later and claim we failed to disclose it.
Your business doesn’t have to look perfect, and pretending it does only hurts your position when someone finds things you tried to hide. If we can show what was provided and what the buyer already knew when they signed the LOI, we’re not arguing about whether the company has an issue. We’re arguing over whether an issue already priced into their offer is grounds to change the deal.
Exclusivity Is the Mechanism Behind All of It.
Before you pick a buyer, you might have several credible parties looking at your business. They won’t all offer the same price, structure, or terms, and that difference is the point. No one gets to assume you have nowhere else to turn.
Then you sign an LOI, and most LOIs include a no-shop. You agree not to solicit other offers while this buyer runs due diligence and works toward closing. That’s fair. They’re about to spend real money on accountants, attorneys, and lenders, and they’re entitled to know you won’t use their work to shop the company.
Be clear about what you’re giving up. Every week you spend under exclusivity makes your best alternatives harder to reach. Other bidders move on, their capital goes elsewhere, and their teams focus on a different deal. A buyer who saw you had five options in June may realize you only have one by October.
That’s why extensions deserve more attention than they usually get. Thirty extra days sound harmless when everyone thinks the deal is almost done. But it’s not free if the buyer is moving slowly while your other options fade away. Tie any extension to real progress, keep the window short, and remember: a deadline only matters if you’re willing to stick to it. (Last week, I mapped the six categories of risk that threaten a closing. This is the mechanism that decides what each of them costs you.)
What to do now: Before you sign, ask your M&A advisor what your realistic alternatives look like at 60 and 90 days into exclusivity. If the answer is that they’re gone by day sixty, the length of that window matters more than almost anything else in the document. |
Diagnosis Comes Before Response.
When something lands late, your first instinct is to answer right away. A better move is to figure out which of the three types of issues you’re dealing with, because each one needs a different response.
Two questions get you most of the way. What changed in the buyer’s model in dollars? And when did they first have this information?
A sequencing issue is real and deserves real work. Arguing about motive wastes the leverage you have. Accumulation calls for adding things up and trading. A tactical issue calls for documentation and, sometimes, for slowing down rather than speeding up.
There’s a fourth possibility worth holding in mind. The buyer may be passing along pressure rather than applying it. Their lender revised terms after an appraisal. Their investment committee asked a question in week ten that no one had asked in week two. A principal who wants this deal may be arguing internally to keep it alive while relaying a demand they don’t personally like.
You find out by offering a different solution to the same problem. If the lender requires more equity, potential solutions may include additional buyer capital, a smaller senior loan, subordinated seller financing, an earnout, rollover equity, or a lower purchase price—subject to the lender’s requirements. A buyer working on a problem will engage with alternatives. A buyer who wants the concession itself won’t move regardless of what you propose.
How the Conversation Is Handled Decides Much of What It Costs.
How you handle the first forty-eight hours matters more than the merits of the issue itself.
Acknowledge the issue promptly, but don’t agree to a concession before you understand the facts. Confirm the actual deadline, ask for the issue and its financial impact in writing, and then formulate the response with your advisor and counsel. The written version is often smaller than what you hear in conversation.
Decide ahead of time who should speak for you, and most of the time, it shouldn’t be you. Your advisor can take a firm position and still keep things friendly with the buyer at closing, which is much harder for you to do. You might have a transition period ahead. You may need to introduce this buyer to your customers, employees, and suppliers. You don’t want every disagreement to turn personal between you and the person about to own your company.
Trade rather than concede. If something moves toward the buyer, something should move toward you. It’s less about any one trade and more about making it clear that requests carry a price. That changes how many requests you get.
Don’t negotiate late at night. Whatever feels urgent at eleven o’clock, after a long day running your business, will still be there in the morning. Chances are, it will look a lot smaller with fresh eyes.
What to do now: Agree with your advisor now, before anything goes wrong, on who responds to a late issue and how quickly. A seller who settles that in advance doesn’t have to decide it while upset. |
Your Walk-Away Point Only Works If You Set It Early.
I worked with a group of founders who had five days until closing. The contracts were essentially done. Then a disagreement over the working capital numbers produced a variance they weren’t willing to accept, and they had a choice: take what was in front of them or walk.
They walked, then decided not to sell at all. They transitioned the company internally to the next generation of employees, some family and some not. The buyer had been a division of a publicly traded company, and the founders came to believe their brand, their name, and the company’s place in the community would eventually be absorbed into something larger. They decided that wasn’t worth the money. That took guts, and it took confidence in the people who had helped them build it.
I tell that story in Sweat Equity Payday for a reason that has little to do with working capital. Being five days from closing doesn’t make an unresolved economic issue any less significant.
Until you are legally committed, walking away may remain an option. What changes over time is the financial, emotional, and practical cost of doing it. That’s why you need to decide your floor early. Write down the terms that would make you walk before the buyer is your only option, before employees start to wonder, and before you’ve started picturing your post-sale life. The line can move if the facts change, but you shouldn’t be figuring it out for the first time when the pressure is highest.
Preparation Is Mostly the Preservation of Options.
When owners hear about preparing a business for sale, they think about valuation. Grow EBITDA, clean the books, reduce concentration, build a management team. That work matters.
It does something else too. A clean contract file buys you time. Early disclosure buys you credibility. Having qualified buyers and real competition gives you alternatives. A disciplined LOI keeps the process on track, and a well-documented data room makes it clear what’s a real discovery and what’s just a late excuse. None of this guarantees an easy closing. Deals have a way of taking on lives of their own, and something unexpected usually comes up. But it does make sure that one ordinary problem doesn’t decide the outcome.
At HartmannRhodes, I work with owners of lower-middle-market companies across the country through this exact stage of a transaction. That means surfacing issues while they’re still business problems rather than deal problems, negotiating the mechanics that get finalized when your leverage is lowest, and carrying the difficult conversations so you can keep running your company and stay on good terms with the person buying it.
You’ve spent decades building your business. Don’t let month four be the place where it all gets decided.
You only sell your business once. Make it count.
If you’re in a process now, or heading into one, and want a clear view of what’s still ahead, schedule a confidential discovery conversation.
Common Questions About Late-Stage Deal Issues1) Why do problems surface late in a business sale? Three reasons. Some work can’t happen sooner, including working capital calculations, disclosure schedules, final lender approval, and consents that require a named buyer. Some issues accumulate through small requests that never look significant on their own. And some are raised late deliberately, because a seller has fewer options in month four than in month one. 2) What is a working capital peg and how is it set? The peg is the amount of working capital a buyer expects to find in the business at closing, enough to run it through one cash cycle. It’s usually calculated from a trailing average of your balance sheet over the prior twelve months. Deliver less, and the price drops dollar for dollar. The averaging period, what counts toward the target, and how disputes get resolved afterward are all negotiable, which is why the methodology belongs in the LOI discussion rather than the closing week. 3) How does exclusivity change a seller’s negotiating position? A no-shop clause prevents you from soliciting other buyers while this one is working toward closing. It’s reasonable to grant, and it’s also the largest transfer of leverage in the transaction. Every week under exclusivity, your other options get harder to reach as those buyers deploy capital elsewhere. That’s why the length of the window and the terms for extending it deserve as much attention as the price. 4) What is a post-LOI nibble? A small request that arrives after the letter of intent: an extra representation, a longer survival period, a slightly larger escrow. Each looks like housekeeping, and stacked across several drafts, they move meaningful money. Track the cumulative effect and negotiate the total rather than each item alone. 5) Should I disclose problems in my business before a buyer finds them? Generally yes. A business doesn’t need to look perfect, and a known issue explained properly in the CIM or the data room is far easier to defend than the same issue discovered later and characterized as something you concealed. Early disclosure allows the issue to be considered in the original offer and strengthens the seller’s position if the buyer later tries to use the same information to change the deal. 6) How should a seller respond when a problem surfaces near closing? Don’t answer the same day. Ask for the issue, the dollar impact, and the supporting documentation in writing. Work out whether it’s a genuine sequencing issue, an accumulation of small asks, or a tactical play, because each calls for a different response. Let your advisor carry the negotiation and trade rather than simply concede. 7) When should a seller decide their walk-away point? Before signing the LOI, while nothing is at stake and the pressure to accept is at its lowest. The cost of walking rises with every month of professional fees and every week of exclusivity, so a floor set late tends to be set under exactly the conditions that make sellers abandon it. |
Mark Hartmann is a former business owner turned M&A advisor—and the author of Sweat Equity Payday—who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO honoree, he led his own eight-figure sale and now helps business owners sell companies worth $1M to $25M. Mark understands that selling a business is personal, not just financial. That’s why he works closely with owners to maximize value, protect their legacy, and transition on their terms.
He holds an MBA from Eastern University and a master's degree in organizational change management from St. Elizabeth University, as well as Certified M&A Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB) credentials.
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HartmannRhodes advises owners of companies typically valued between $1–$25 million. If you’d like a structured pre-sale valuation review and a readiness roadmap, we can walk you through the process and tailor it to your timeline and goals. Contact us today!
Blog: Business Sale Problems After the LOI: What Sellers Should Do