Every buyer has a list of things they think will go wrong in a deal. The ones that actually hurt tend to be the ones nobody put on the list. On November 20 at 1:00 ET, I’m sitting down with Dylan Gans, co-founder of Baton, for a live & free webinar on red flags from both sides of the table. If you haven’t used it, Baton is a marketplace for buying and selling small businesses. One NDA gives buyers access to every listing, with standardized data rooms and verified financials, and it works with owners as well, helping them value their business and find the right buyer. That means Baton sees how sellers present their businesses and what buyers ask before they make an offer. We see the investor side: the things that make us pass on a deal, or slow down and dig deeper. Put those two views together and you get a clear picture of what to look for before you sign. It’s a one-hour conversation, and I’ll be interviewing Dylan rather than running slides. Expect it to be candid and practical. If you’re searching, under LOI, or in diligence right now, this one is worth an hour of your time. Partner Perspective: Matthias Smith, Pioneer Capital Advisory: Your Deal Clears the Coverage Test. That Doesn’t Mean It Clears Credit. One of the easiest mistakes in buying a business is treating debt service coverage as the answer to the financing question. The earnings cover the payments, the seller will carry a note, and the buyer can fund the down payment. On paper, it fits. Then underwriting starts. Over the past two months at Pioneer, we’ve seen lenders question everything from double-counted owner bonuses to how a buyer will fund payroll when the seller keeps the receivables. The common thread: will the cash flow supporting the loan actually be available after ownership changes? Start with the earnings you can substantiate. Each add-back needs support, and expenses that leave with the seller must be separated from those you’ll inherit. One lender accepted compensation adjustments once payroll records backed them up. Another declined a deal where thin cash flow and heavy add-backs were compounded by limited buyer experience and assets. Add-backs aren’t the problem; needing every one of them accepted is. Know what happens to coverage if a material adjustment is removed. Model the business you will own. This is where otherwise thoughtful acquisition models can become inconsistent. We recently had a lender flag a buyer’s outside salary in the global cash flow, even though the buyer planned to run the business full time. Other common gaps: the seller’s compensation is added back but the cost of replacing their work is understated, or historical rent is removed before new lease terms are set. The fix isn’t complicated. The model just has to reflect the actual plan. Working capital can change the financing answer. In September, a lender reviewed a deal at 1.29x coverage against its 1.30x threshold. Its next question: was the seller leaving working capital? If not, financing the shortfall would push coverage lower. On another deal where the seller kept the receivables, the lender recommended funding roughly $350,000 of working capital within the term loan. Establish what transfers at closing and build the financing around the resulting cash need. Deferred obligations still need a repayment plan. Seller-note deferrals provide breathing room, but lenders will underwrite the payments that follow, including any balloon. The same goes for your personal balance sheet. In October, a lender declined a deal because global cash flow depended on refinancing the buyer’s existing personal balloon. The buyer had a plan, but a planned refinance is not a completed one. The risks are evaluated together. Customer concentration is a good example: a long relationship with the seller can be valuable, but lenders want evidence that it will survive the transfer. In one review, a bank asked what agreement supported the continuity of a customer representing 38% of revenue. That concern grows alongside thin coverage, limited reserves or a buyer new to the industry. The strongest financing requests explain who will do the seller’s work, why customers will stay, how the business will fund its operating cycle and what cushion remains if performance softens. Before settling on price and structure, ask: What has to go right for this debt to be repaid, and which of those assumptions can I prove today? Better to have that conversation before the LOI than after six weeks defending it. If you’re evaluating an acquisition and want help assessing the financing before committing to terms, set up time with our team.