One of the biggest mindset shifts for first-time buyers is understanding what a signed Letter of Intent actually means. Early in our acquisition journey, we celebrated every time an LOI was accepted because it felt like we’d made it. Today, we know that a signed LOI is simply the beginning of the hardest part of the process. In many cases, 30 to 50 percent of deals that reach the LOI stage never close. The real work begins after the signatures are on the page.
Our own close rate is likely higher than average because we do a significant amount of underwriting before submitting an LOI. We have experienced professionals reviewing deals, we understand SBA lending, and we know how to identify issues early. Even with that preparation, we still see deals fall apart. That should tell you just how unpredictable the period between LOI and closing can be.
The quality of earnings review
One of the most common reasons deals fail is the quality of earnings review. If the QoE reveals that seller discretionary earnings are materially lower than originally represented, the economics of the transaction can change overnight. Buyers may no longer want the business, or sellers may refuse to accept the price adjustment required to reflect the lower cash flow. Either way, the transaction stalls or dies altogether.
Interim performance that slips
For us, one of the biggest challenges is watching interim financial performance deteriorate while we're under contract. A business may show $1.2 million of trailing twelve-month earnings when the LOI is signed, only to experience a sharp decline over the following several months. Sometimes that's because the seller mentally checks out and stops pushing the business. That's why we've started having a conversation immediately after the LOI is signed to emphasize that everyone still needs to run through the finish line together. A business can't be placed on autopilot just because it's under contract.
Sometimes, however, the decline has nothing to do with the seller. During late 2024 and early 2025, we saw a number of otherwise healthy businesses experience temporary slowdowns. Activity declined during the presidential election cycle, and the uncertainty surrounding tariffs extended that slowdown into the following year. Many businesses experienced six months of weaker earnings, which significantly reduced their trailing twelve-month cash flow and caused financing challenges, even though the long-term fundamentals remained sound.
One example was a steel manufacturing company we spent a considerable amount of time pursuing. As construction activity slowed, the company's earnings fell enough that the debt service coverage ratio no longer supported SBA financing. Looking back, the business eventually recovered as market conditions improved, but during diligence there was simply too much uncertainty to justify moving forward. The deal ultimately died because the numbers no longer supported the financing.
Sellers who move the goalposts
Another acquisition involved a pool builder that we were excited about because our operating partner had an outstanding construction background. When earnings softened, we were able to restructure the transaction by increasing the seller note and placing it on standby, which preserved the debt service coverage ratio and kept the deal alive. It looked like we’d found a solution until, just weeks before closing, the seller changed the terms. Although the original agreement allowed the seller to retain a software product they had developed, they suddenly insisted that we purchase it for an additional $500,000. The software had no customers and very little standalone value, so we walked away. Months of work ended because the seller moved the goalposts at the last minute.
We’ve also learned to pay close attention to sellers who display narcissistic tendencies during negotiations. These are the sellers who insist that every provision in the purchase agreement favor them, refuse to compromise on standard market terms, and view every negotiation as something they must "win." One healthcare acquisition stands out in particular. Our operating partner was an almost perfect fit for the business and was even willing to overpay because of the strategic opportunity. Yet every conversation became a battle. Every contract provision had to benefit the seller, and despite receiving numerous concessions, the seller ultimately walked away from the deal anyway. We saw the same pattern with a concrete construction company, where every negotiation became one-sided before the seller eventually backed out after we had already invested significant time and money. Experiences like these have taught us that unreasonable behavior early in the process rarely improves later.
And sometimes, nobody could have predicted it
Not every failed deal follows a predictable pattern. One of the most unusual involved a restoration company. Our original operating partner decided to start his own business instead, but the seller introduced us to his general manager as a potential replacement. Initially, everything looked promising. We worked through concerns about a prior felony after reviewing the circumstances and obtaining lender approval. Then, just two weeks before closing, the prospective partner was detained during an unrelated drug investigation. Although no charges were filed, the bank immediately withdrew its financing, and we agreed that the risk was simply too great.
We experienced another transaction where financing nearly collapsed over something far less dramatic. A buyer had a $1,500 monthly car payment, and one underwriter simply didn't like it. Another lending team at the same bank likely would have approved the exact same loan. Situations like this are why we maintain relationships with many SBA lenders. Lending decisions are not always consistent, and sometimes success simply comes from finding the institution whose credit policies align with your deal.
The biggest takeaway
Signing an LOI doesn’t mean you’ve bought a business. It means you’ve earned the opportunity to begin diligence, navigate financing, solve unexpected problems, and determine whether the transaction still makes sense. Every acquisition seems to "die" multiple times before it either closes or falls apart for good. The buyers who succeed aren’t the ones who avoid problems — they’re the ones who expect them and know how to work through them.
About the author
Mark Fleming, CFA, FRM
Mark Fleming is the co-founder of Owner Actions, where he partners with experienced operators to acquire and grow small businesses. He has participated in more than 40 business acquisitions and has evaluated thousands of businesses across dozens of industries. Drawing on a background in portfolio management, financial analysis, and business ownership, Mark helps entrepreneurs identify high-quality acquisition opportunities and build businesses for long-term success.