Seven Deadly Sins Buyers Frequently Uncover During Due Diligence
- Mark Hartmann
- Apr 16
- 6 min read
You’ve built your business over decades. The long nights, the weekends sacrificed, the payrolls met, and the relationships forged—it’s more than a business; it’s part of who you are. So when you’re finally ready to sell, you want to do it right.
As someone who built, grew, and sold my own company, I know firsthand that selling a business is an emotional and strategic decision. One of the biggest hurdles—and one of the least understood by business owners—is the due diligence process.
Due diligence is where deals are made… or lost.
When serious buyers evaluate your business, they're not just kicking the tires. They're lifting the hood, checking the oil, and scanning every system to see what's really going on. And if they uncover red flags, you risk losing deal value—or the deal entirely.
After years of advising business owners in the $1M to $25M range, I've seen patterns repeat. Below are the seven most common issues—or as I call them, The Seven Deadly Sins—that buyers frequently uncover during due diligence. If you're considering selling your business (especially if you're nearing retirement), this article is your wake-up call to avoid these pitfalls before they become deal killers.
1. Inaccurate or Incomplete Financials
This one is first for a reason. Nothing derails buyer confidence faster than messy books.
Buyers expect clean, GAAP-compliant financial statements. If you can’t produce accurate income statements, balance sheets, and cash flow reports going back at least three years, expect serious problems.
Even worse? If your numbers don’t reconcile. Buyers will scrutinize gross margins, normalize owner compensation, and look for add-backs. If things don’t line up—or if there’s a pattern of inconsistencies—they’ll assume there are deeper problems.
What to do instead:
Hire a reputable CPA (ideally one with M&A experience) to review and prepare your financials before going to market. Consider a sell-side Quality of Earnings (QoE) report. It’s not cheap, but it builds trust and reduces surprises later.
2. Overreliance on the Owner
This is a big one—especially for owner-operated businesses, which are common among sellers in their 60s and 70s.
If you are the rainmaker, the operator, the decision-maker, and the face of the business, then what happens when you’re gone? Buyers want a company that can thrive without you.
Many owners think they’ve delegated effectively—until a buyer starts asking questions like:
• “Who manages key customer relationships?”
• “Who sets pricing and approves budgets?”
• “Can your business run for 60 days without you?”
What to do instead:
Start building a management team that can operate independently. Document your processes. Empower your second-in-command. This not only increases value but also makes your company more sellable.
3. Customer Concentration
If more than 20–25% of your revenue comes from a single client—or even a small group of clients—you’ve got customer concentration risk.
From a buyer's perspective, this is dangerous. What if that customer leaves post-sale? That kind of volatility can spook lenders and investors, resulting in reduced valuations or earnouts instead of upfront cash.
What to do instead:
Start diversifying your customer base now. If you can’t reduce concentration, be ready to demonstrate long-term contracts, high customer satisfaction, and solid reasons for loyalty. The more you can de-risk the revenue stream, the better.
4. Unclear or Missing Contracts
Verbal agreements and handshake deals don't cut it in the sale process. Buyers want to see written contracts—especially for customers, vendors, and key employees.
This is about visibility and enforceability. No written contracts mean no legal protection, which means added risk. And risk equals a lower purchase price.
Common issues buyers uncover:
• No employment agreements or non-competes for key staff
• Expired or auto-renewed customer contracts with outdated terms
• Vendor agreements with unfavorable clauses
What to do instead:
Work with an attorney to review and formalize material agreements, update customer and vendor contracts, and tighten up employment and non-solicitation terms for top employees. It's a small investment with a big impact.
5. Hidden Liabilities
You'd be surprised how often undisclosed or poorly documented liabilities surface during diligence. Pending lawsuits, tax delinquencies, unpaid bonuses, or unfunded benefit obligations can seriously damage trust.
Remember, buyers are trying to project future cash flow. Anything that drains that cash—especially unexpectedly—will raise alarm bells.
What to do instead:
Disclose early. Transparency builds trust. If you’ve got skeletons in the closet, bring them up with your advisor and deal attorney so they can be addressed upfront. Surprises late in the game kill deals.
6. Weak Employee or HR Practices
Your people are your greatest asset—but only if there’s a system in place to manage them.
Buyers will review your org chart, compensation structure, employee turnover, benefit plans, and HR compliance. They’ll also look for signs of culture issues or potential lawsuits.
If you’ve been lax on formal HR policies, onboarding, job descriptions, or employee reviews, that can create a perception of risk.
What to do instead:
Standardize your HR practices, create or update employee handbooks, ensure compliance with wage, labor, and benefits laws, invest in retaining top talent, and identify successors for key roles. Buyers pay more for stable, well-run teams.
7. No Preparation for the Sale
Finally, the seventh sin: going into the sale unprepared.
Too many owners decide to sell when tired or burned out. They rush to market without prepping their business, financials, or themselves, which leads to lower offers, longer timelines, and frustrating negotiations.
Selling a business is a process, not an event. You only get one shot to do it right.
What to do instead:
Start early—ideally 1–2 years before you plan to sell. Work with an experienced M&A advisor (like me) to identify value drivers and risks. Build a plan to prepare your business for the market. This includes strategic planning, tax optimization, and understanding what buyers want.
Wrapping It All Up
Due diligence is where the rubber meets the road. It’s when buyers move from interest to inspection. If your business isn’t prepared, that inspection will turn into interrogation—and that’s when deals fall apart.
Let me leave you with this:
You've spent a lifetime building something meaningful. Selling it should be the most rewarding chapter, not the most stressful. But that only happens with preparation, transparency, and the proper guidance.
At HartmannRhodes, I work exclusively with business owners like you—owners who are approaching retirement, care deeply about their legacy and want a successful exit on their terms. I've been in your shoes. I sold my own company. And now, I help others do the same with clarity, confidence, and a decisive outcome.
If you're considering selling in the next few years, let's talk. There's no pressure—just clarity.
Blog: Seven Deadly Sins Buyers Frequently Uncover During Due Diligence
Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.
Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).
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