The top five reasons small business transactions fail to close are: unrealistic valuation expectations, buyer financing falls through, poor or incomplete financial records, due diligence surprises or delays, and misaligned goals or deal terms between buyer and seller.

Here’s a deeper look at each, including solutions to help eliminate risk:

1. Unrealistic Valuation Expectations

• Sellers often overvalue their business, driven by emotional attachment or misunderstanding of market multiples. The business is almost always worth the most to the current owner since they have the most invested – blood, sweat, tears, time, and money.
• Buyers, especially those using SBA loans or investor capital, rely on objective metrics, such as EBITDA or SDE multiples, comparable sales, and risk-adjusted returns.
• Solution: Sellers should hire a third-party valuation appraiser or a very experienced business broker to set a realistic asking price and justify it with data. Appraisers and brokers have access to databases of completed transactions in the same industry and market for comparison. If the asking price is not comparable to completed transactions, buyers will bypass the listing. The bank also requires specific benchmarks to approve financing. For example, the bank may require a “coverage ratio” of 1.25. That means that the earnings must cover the debt service by 1.25 times.

2. Buyer Financing Falls Through

• Many deals are contingent on SBA loans, private financing, or seller financing. If the buyer cannot secure funding, the deal collapses.
• High interest rates and tighter lending standards have made this more common in 2025.
• Solution: Buyers should obtain at least one pre-qualification letter to determine their purchase capabilities before making an offer. It is also important to understand the SBA and bank requirements for experience within the target industry.  Sellers should consider offering partial seller financing to bridge any gaps. Transactions with seller financing tend to sell for twenty percent more than those without. 

3. Poor or Incomplete Financial Records

• Inconsistent bookkeeping, missing tax returns, or unclear revenue streams raise red flags.
• Buyers and lenders need clean, verifiable financials to assess risk and value.
• Solution: Sellers should maintain accrual-based financials, reconcile accounts, and prepare 3–5 years of statements before listing. Pay particular attention to variations in revenue and earnings and be prepared to explain why they occurred. Also, be prepared to verify any non-operating and/or non-recurring revenue and expenses.

4. Due Diligence Surprises or Delays

• Surprises during due diligence—like undisclosed liabilities, legal issues, or operational weaknesses—can erode trust and momentum.
• Delays in providing documents also signal disorganization or risk.
• Solution: While preparing a business for sale, a good broker will help the seller identify and address any outstanding liabilities, legal issues, etc., or operational weaknesses. Sellers, along with their broker, should prepare a virtual data room in advance with all key documents, including financials, leases, licenses, and agreements with customers, vendors, and employees. Time kills deals, so promptness is essential.  Sellers should also work closely with an accountant to ensure their books are accurate and up to date.  

5. Misaligned Goals or Deal Terms

• Disagreements over transition periods, non-compete clauses, or post-sale involvement can stall negotiations. The transition period is crucial for the smooth transfer of the business. Lenders often require the seller to remain with the business for a period of time and to hold a seller note to ensure the seller has “skin in the game”.  These issues are especially common in Southwest Florida’s small business market, where many sellers are retiring, and buyers are often first-time entrepreneurs or E-2 visa investors.
• Cultural fit and vision for the business also matter, especially in owner-operator transitions.
• Solution: Sellers and buyers should clarify expectations early and align on key terms before due diligence.

Bonus Deal Killer
Engaging an attorney is always recommended for a business transaction. However, attorneys can sometimes overprotect their client out of a deal that has been agreed upon by the seller and buyer. Sellers and buyers should engage an attorney whose practice focuses on business transactions. Attorneys are either dealmakers or dealbreakers. Be certain to pick the right one.

Conclusion
Edison Business Advisors is dedicated to supporting sellers and buyers through every stage of the transaction process to ensure deals close.  Contact an Edison Business Advisors team member today for a complimentary, confidential consultation to get started on your journey of selling or buying a business.