Reduction in revenues during the due diligence period?

August 11, 2025

by a searcher from The Johns Hopkins University in Kalamazoo, MI, USA

I am looking at a small business and during due diligence period, we found out that business is down 14% in revenue this year. Is it typical to request price reduction in that order or lower or would that be breach of agreed price. I am sure the seller will push back and hence wanted to understand what is typically expected ? Just want to get feedback from buyer, seller or brokers who have experienced the same

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would look at the trailing 12-month period and also compare the interim 2025 period with that in 2024 to be sure there is no seasonality to the business. Sometimes revenues might be down but it is seasonal. However, if revenues and cash flow are down, then an adjustment would likely be warranted. If you are working with lenders, lenders will be worried about the revenue decline and certainly if there is a cash flow decline unless there is a good reason for it. We have seen a few businesses impacted by tariffs, namely one-time increases in COGS to bring products in from overseas before tariffs went into effect. However, this generally impacts profits and not revenues. But items like that can be explained. But if core revenues are going down with no good explanation, again a price adjustment is likely warranted, or you could offer to wait to see if things turn around if the seller believes they will. We have seen many transactions this year see a decline in revenues and profits as the year has gone on, more so then in most years. That is creating some issues on transactions and getting them to closing. It is always better to see this trend downward though prior to closing then after.

Reply by an intermediary
from Clemson University in Raleigh, NC, USA

For me it would depend on the reason for the reduction in gross sales. If it's loss of a key client or employee that has a material impact on the value. If it was due to for example, their key supplier having shut down to retool and expand which happened in 2023 to one of my sellers) that doesn't worry me. However, the loan has to meet debt service coverage ratios and if the seller wants to sell they may have no choice but to accept a lower offer. If retrading do so using the same multiple of earnings and explain that you are. This seems to hurt less. Another option would be to rescind the LOI with an explanation and no retrade. The seller may come back asking for a new offer based on the more recent financial information and you don't have the retrading stigma.

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