Why Deals Die in Diligence (And How to Prevent It)

Most deals don’t die because the business is “bad.” They die because diligence reveals risks, confusion, or surprises the buyer didn’t underwrite, and confidence breaks.

Due diligence is designed to surface exactly that: debts/liabilities, problem contracts, litigation/regulatory risk, intellectual property issues, and other items that can change the deal economics or terms. 

Below are the most common failure points we see, plus a founder-friendly prevention plan.

6 reasons deals collapse (or get “price-chipped”) in diligence

1) Disorganised information and missing documents

If you can’t quickly produce clean financials, key contracts, corporate records, and compliance documentation, diligence drags—and buyers start assuming bigger problems exist. 

Prevent it: build a simple data room early (even a well-structured folder system) and keep it up to date.

2) Financial discrepancies and weak earnings quality

Buyers will test whether earnings are real and repeatable—tax items, working capital needs, accounting inconsistencies, nonrecurring revenue, and add-backs. One common remedy is a Quality of Earnings (QoE) review to surface issues before buyers do. 

Prevent it: do a sell-side QoE (or at least a “QoE-lite” internal review) before going to market.

3) Working capital surprises between LOI and close

Even when the headline price looks set, purchase price adjustments can change at the last minute. Working capital is a frequent source of friction that triggers renegotiation (“price chips”). 

Prevent it: agree early on a defensible working capital peg, align accounting policies, and track weekly through closing.

4) Customer concentration and revenue risk

Customer concentration is a classic buyer concern because losing a major account can materially change revenue. Concentration risk is widely recognised as a factor that can drive lower valuation, heavier diligence, and additional deal protections. 

Prevent it: quantify concentration clearly, tighten contracts/renewals, and build a diversification plan (even if it’s phased).

5) Legal / IP / compliance “landmines”

Diligence routinely covers litigation risk, regulatory exposure, and IP ownership, especially in businesses that use contractors or have informal arrangements. 

Prevent it: clean up IP assignments, standardise contracts, resolve obvious disputes, and document compliance posture.

6) Reps & warranties don’t match reality

As diligence progresses, the purchase agreement’s representations and warranties force sellers to disclose where the business deviates from the “perfect world.” If disclosures are late or incomplete, trust breaks quickly. 

Prevent it: prepare disclosure-style lists early (material contracts, permits, employee benefits, IP, claims), so you’re not scrambling.

The prevention playbook (simple, high impact)

Step 1: Run a “Fix First” triage (30–60 days)

Pick the lowest 5 readiness items (financial clarity, concentration, contracts, IP, founder dependency, etc.) and fix those first—before polishing decks.

Step 2: Make diligence boring

Boring is good. Boring closes.

• clean monthly reporting + documented add-backs 

• organised data room and fast response cycles 

• known liabilities and clear documentation (legal/IP/contracts) 

Step 3: Reduce “surprise surfaces”

Surprises usually come from:

• earnings normalisation (QoE issues) 

• working capital mechanics 

• customer concentration and contract fragility 

Design your prep around those.

A quick founder checklist (use this before you send anything out)

If diligence starts next week, can you produce within 48–72 hours?

• last 24–36 months financials + monthly trend view 

• top customer list + contracts + renewal terms 

• working capital view + accounting policies 

• IP ownership evidence (assignments, contractor agreements) 

• list of litigation/regulatory issues (even if “none”) 

If not, that’s your roadmap, not a reason to panic.