After looking at 20+ IT services and B2B deals over the past year, certain things end my interest immediately. Not after diligence. Before I ask for the CIM.
Mostly a trades issue — HVAC, plumbing, electrical — but it comes up in IT too with certain state contractor licences. The owner is the qualifying agent. The LLC has no independent standing to pull permits or hold the licence once he's gone.
Day he leaves, you have 3–6 months of restricted operations while you find a replacement with the right credentials. In home services that's $150–200K in lost project revenue minimum.
The CIM never mentions this. You find it by asking: "Are all operating licences held by the business entity, not the individual?"
I've seen brokers quote $900K EBITDA verbally, $700K in the CIM, and $580K once you rebuild the add-backs yourself with honest assumptions.
At $580K on a $2.8M deal, DSCR fails. The deal that sounded like 3.1× on the intro call never clears the 1.25× floor.
I rebuild add-backs from scratch on every deal. Market-rate replacement salary. Keep 60% of T&E as a real business expense. Vehicle allowance for a new operator. Takes two hours. Every time I've skipped it I've regretted it.
One deal I looked at had a single commercial client at 48% of revenue. Standard enough in IT services. What I missed on the first pass: their MSA had a change-of-control clause — 90 days notice, no cause, triggered automatically on acquisition.
Seller wanted to close before Q1. I found out why when I read the contract. Their RFP was going out in 60 days.
Read every commercial contract before you sign an LOI. Not after.
Four of the top ten clients had a personal relationship with the founder. That's 10–15% of ARR in one person's briefcase.
"I'll introduce you after we sign" is not a transition plan. If the introductions aren't happening before exclusivity ends, you're pricing blind. Either get the introductions done pre-LOI, or price the expected attrition into your offer.
None of these are exotic. They're in the CIM if you read carefully enough.
What's killed deals for you that looked good on the surface?