The 5 Value Killers That Show Up Right Before a Deal

Most deals don’t fall apart because the business is “bad.”

They fall apart because, right before or during diligence, buyers discover risks they didn’t price in.

And when that happens, one of two things follows:

• The buyer asks for a price reduction, earnout, or bigger holdback, or

• The deal slows down, trust drops, and momentum dies

Here are five value killers we see show up repeatedly — often late — and what founders can do about them.

1) Customer concentration (and weak contract protection)

What it looks like

• One or two customers represent a large percentage of revenue

• Key contracts are short-term, informal, or easy to terminate

• Renewals are “relationship-based,” not contract-driven

Why buyers discount it

Buyers price the downside: if one customer leaves, the whole model changes. Even if the relationship is strong, the risk is expensive.

What to do now

• Quantify concentration clearly (top 5/10 customers)

• Strengthen contracts (terms, renewals, pricing, termination clauses)

• Build a plan to diversify revenue before you go to market

2) Founder dependency (key-person risk)

What it looks like

• Founder closes key deals

• Founder owns critical client relationships

• Founder is the product brain, delivery lead, or escalation point

Why buyers discount it

A buyer needs confidence that the business will perform without heroic founder involvement. If not, value shifts into structure: earnouts, retention packages, longer transition obligations.

What to do now

• Transfer relationships to the company (not a person)

• Build a second line of leadership (sales, ops, delivery)

• Document core processes so results are repeatable

3) Financial “fog” (numbers that don’t survive diligence)

What it looks like

• Monthly reporting is inconsistent or delayed

• Margins fluctuate without a clear explanation

• Add-backs are aggressive or undocumented

• Revenue recognition is unclear

• Segmentation (by product, region, customer type) is messy

Why buyers discount it

When buyers can’t trust the numbers, they assume risk is higher. That often means lower valuation and tighter terms.

What to do now

• Tighten monthly reporting cadence

• Document add-backs with evidence

• Clean up revenue and cost segmentation

• Prepare a simple “diligence-ready” financial pack

4) Revenue quality issues (growth that isn’t durable)

What it looks like

• Revenue is lumpy or heavily one-off

• Growth is driven by discounting or low-quality leads

• Churn is rising, but not tracked properly

• Pipeline relies on a few channels or relationships

• “Big Months” are not repeatable

Why buyers discount it

Buyers don’t pay for last month’s revenue. They pay for the probability it continues. Weak revenue quality lowers that probability.

What to do now

• Measure retention (and reasons for churn)

• Define what “good revenue” looks like (pricing, contract length, margin)

• Improve sales hygiene: CRM discipline, pipeline stages, win/loss tracking

5) Legal / documentation gaps (diligence landmines)

What it looks like

• Contracts missing, inconsistent, or not signed

• IP ownership unclear (especially with contractors)

• Employee agreements and non-competes inconsistent (where enforceable)

• Compliance gaps or unresolved disputes

• Messy cap table or shareholder documentation

Why buyers discount it

Legal risk is hard to quantify, so buyers protect themselves with holdbacks, indemnities, or price reductions — or they walk away if it’s severe.

What to do now

• Run a “document hygiene” sweep

• Consolidate and standardise key contracts

• Fix IP assignment and contractor agreements

• Clean up cap table, resolutions, and shareholder docs

A founder-friendly takeaway: value is often lost late — not because of performance

The painful part is that many value killers aren’t existential problems.

They’re fixable, but they need time and focus.

The earlier you remove these five discounts, the more likely you are to get:

• Better valuation

• Cleaner terms (less earnout / less holdback)

• Faster diligence

• More confident buyers

• A smoother close

Quick self-check (60 seconds)

If you’re planning a recap or exit in the next 12–24 months, ask:

• Could we lose our top customer and still look stable?

• Can the business run for 60 days without the founder in the room?

• Are our numbers clean enough to defend under scrutiny?

• Is our revenue repeatable, or just recently strong?

• Would we be calm if diligence started next week?

If any of these feel uncomfortable, that’s not a problem; it’s your roadmap.