Guide
Retrading after due diligence
Every buyer worries about being the person who retrades. The worry is useful — it keeps you honest — but it also stops people raising adjustments they are entirely entitled to, and paying for problems they found and correctly identified.
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The test that actually distinguishes them
There is a clean line here, and it is worth stating before anything else.
Did you learn something you could not reasonably have known when you made the offer? If yes, repricing is what diligence is for — your offer was explicitly conditional on it. If no — if the fact was in the listing, in the numbers you were given, or something you simply failed to think about — then you are asking the seller to fund your own oversight, and they will experience it that way.
Apply the test item by item rather than to the deal as a whole. A single negotiation often contains both kinds, and the credibility of the legitimate findings is damaged by being bundled with the others. Take the weak ones out.
| Legitimate | Not legitimate |
|---|---|
| Earnings restate materially once add-backs are tested | The multiple now feels high to you |
| A customer you were told was stable has given notice | Customer concentration you were told about upfront |
| Tax, licence or environmental exposure surfaces | A risk that was disclosed and you did not price |
| The lease has a term, condition or rent review nobody mentioned | The lease is short and you knew that |
| Equipment needs capital expenditure you were told it did not | The equipment is old and you saw it |
| The seller's role is materially larger than represented | You have decided you want a better deal |
| The lender's valuation constrains what is financeable | Another buyer's listing looks better value |
Reprice, or restructure?
Not every finding is a price problem, and treating them all as one is why some adjustments feel excessive to the other side.
| The finding is… | The right instrument | Because |
|---|---|---|
| Certain, quantified, ongoing — it changes sustainable earnings | Price | You are buying a stream of earnings. If the stream is smaller, the price is smaller. This is arithmetic, not negotiation |
| Certain but one-off — a repair, a back payment, a fee | Price, or seller cures before closing | A known cost with a number on it. Either party can carry it; say which |
| Contingent — it may cost nothing or a lot | Holdback, escrow or specific indemnity | Neither of you should pay today for something that may never happen. See escrow and holdbacks |
| Structural — it changes what the business is | Reconsider the deal | Some findings are not discounts. A business that depends entirely on the departing owner is a different purchase, not a cheaper one |
| Successor liability — the seller's obligation that follows the business [2] | Procedure first, then structure | File the bulk-sale notice. Then decide what to hold back. A price cut does not solve a liability that attaches to you |
Do the arithmetic before the conversation
The most common way a legitimate adjustment fails is that it is presented as a feeling about the price rather than a consequence of the findings.
Work it through properly:
- Restate the earnings. Rebuild SDE or EBITDA with the findings applied — add-backs you could not substantiate removed, costs the seller was not paying included, one-offs stripped from both directions.
- Apply the same multiple you originally applied. This matters more than it looks. Holding the multiple constant is what makes the adjustment about the findings rather than about you changing your mind on value. If you think the multiple should also move, that is a separate argument and it is much weaker.
- Add the one-off items separately, itemised, each with its basis.
- Set the contingent items aside for structure rather than price.
- Sanity-check against your financing and against what you can actually service.
What comes out is a number with a derivation. That is a fundamentally different conversation from "we need to be lower".
When the lender decides it for you
On an SBA-financed change of ownership, a business valuation is required, and it functions as a ceiling on what can be lent against the business [1] . If diligence findings move the earnings, they can move the valuation — and then the constraint is not what you are willing to pay but what can be financed.
Say that plainly when it happens. It is one of the few moments in a negotiation where the limit is genuinely external, and a seller who understands that the alternative is a buyer who cannot complete tends to engage with it. It is also why the equity injection matters here: the 10% requirement applies to total project cost and, on an Initial Acquisition, the SOP states it cannot be reduced or eliminated [1] , so a gap between price and valuation lands on your cash, not the lender's. See the equity injection guide.
One structure to rule out before it is proposed: bridging a valuation gap with a seller earnout is prohibited on SBA change-of-ownership deals. Only a buyer rebate is permitted, with proceeds applied to loan principal [1] .
How to raise it
The presentation genuinely changes the outcome, because the seller is deciding two things at once: whether your findings are right, and whether you are acting in good faith.
- Raise material items as you find them. Not everything — you would be renegotiating weekly — but anything significant. A single large adjustment at the end reads as an ambush even when every component is sound.
- Lead with the finding, not the number. Show what you found and how you found it. Let the number follow from it. A seller who accepts the finding has largely accepted the consequence.
- Give the seller the chance to explain. Sometimes there is an explanation, and it is better to hear it before you have anchored on a figure. Buyers have withdrawn adjustments on learning why an oddity existed — and been better informed about the business for having asked.
- Separate the certain from the contingent explicitly. Showing that you are not asking for a price cut on something that might never happen buys credibility for the items where you are.
- Put it in writing, itemised. A schedule of findings, each with its basis and its effect, is harder to dismiss and easier to negotiate line by line — which usually favours the party whose items are well founded.
- Say what you are not asking for. Naming the things you found and are absorbing yourself is disproportionately effective, and it is honest.
- Do not stack weak items onto strong ones. The weak ones are what the other side will argue about, and they will use them to characterise the whole exercise.
Most of this is decided at the letter of intent
The conversation goes well or badly largely because of how the letter of intent was written, weeks earlier.
- Make the price basis explicit. "Based on SDE of $X as represented" gives you a stated foundation. If the foundation turns out not to hold, the consequence follows from the document rather than from your say-so.
- State that adjustment mechanisms are contemplated — price, holdback, escrow, specific indemnity — without naming numbers. You are establishing that this is normal process, not a late tactic.
- Do not overbid to win exclusivity. This is the actual origin of the retrading reputation. A price you cannot stand behind after diligence commits you to either an awkward conversation or a bad deal.
- Ask the hard questions before the LOI. Every fact you establish upfront is one that cannot later be characterised as a pretext.
Being willing to walk is the position
Everything above works better if one thing is true: you have decided, in advance and concretely, what you will do if the seller says no.
Not as a tactic — as clarity. A buyer who has genuinely worked out that they would proceed at the original price negotiates calmly and may well accept it. A buyer who has worked out that they would walk negotiates calmly and means it. The buyer who has not decided is the one who negotiates badly, because every exchange is also an internal argument.
Work out, before you raise it: what the deal is worth to you at the original price, what you would restructure, and what you would decline. Then have the conversation.
Frequently asked questions
What does retrading mean?
Coming back after diligence and asking for a lower price, or materially different terms, than the ones you agreed in the letter of intent. The word is used as an accusation more often than a description, because sellers and brokers have seen buyers use diligence as a pretext for a second negotiation. Whether yours is legitimate turns on one question: did you learn something you could not reasonably have known when you made the offer?
Is retrading unethical?
No — and the reputation attaches to a specific version of it. Repricing on genuinely new information is what diligence is for; an offer made before you have seen the books is necessarily provisional, and both sides know it. What earns the bad name is the buyer who bids high to win exclusivity intending to grind the price down later, or who repackages known facts as discoveries. The difference is visible from the outside, which is why how you present it matters.
When should I reprice rather than ask for a holdback?
Reprice when the finding is certain, quantifiable now, and changes the earnings you underwrote. Use a holdback or escrow when it is contingent — it may cost nothing or a great deal, and you cannot yet size it. A finding that lowers sustainable earnings is a price problem; a finding that creates a discrete risk from the seller's period of ownership is a structure problem.
Will the seller walk away?
Some will, and you should assume the risk is real rather than assuming it is a bluff. But by the time diligence is well advanced, the seller has usually spent months on the process, taken the business off the market, and told people it is sold. That does not entitle you to anything — it just means a well-founded, well-presented adjustment is usually heard rather than refused outright.
How does SBA financing affect this?
It can decide the question for you. On an SBA change of ownership a business valuation constrains what the lender will lend against, so a finding that changes the valuation changes what is financeable regardless of what you and the seller would prefer. That is worth saying plainly to a seller: this is sometimes not a negotiating position but a financing constraint.
What if the seller refuses to move at all?
Then you have a real decision, and the useful discipline is to have decided it in advance. Before you raise the adjustment, work out what you would do if the answer is no — proceed at the original price, restructure, or walk. A buyer who has genuinely made that decision negotiates differently from one who is hoping not to have to.
Should I raise findings as I go, or all at once?
As you go, for anything material. A single large adjustment presented at the end feels like an ambush even when every item in it is legitimate, and it invites the seller to question your motives rather than your findings. Flagging significant items when you find them gives the seller time to explain — and sometimes the explanation resolves it.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 U.S. Small Business Administration. SOP 50 10 8.1 — Appendix 15: 7(a) Changes of Ownership. https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
- 2 NYS Department of Taxation and Finance. Tax Bulletin ST-360: Purchasers' Obligations to Pay Sales Taxes (Bulk Sales). https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/purchasers_obligations_to_pay_sales_taxes.htm
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.