Failed Business Sale in California

Discover why a California roofing business with 145+ inquiries failed to sell. Learn how a $3.2M financial discrepancy during due diligence killed the deal.

Rogerson Business Services of mid-market businesses explores a real-world M&A failure. When it comes to failed business sales in California, the major factor is inaccurate financial statements, which can destroy deal value.

Fun Fact: 75% of businesses fail to exit/sell in the United States. The numbers also reflect the same sentiment in California.

For many business owners, the decision to sell is the culmination of years of hard work. However, getting to the closing table requires more than just a willing seller and an interested buyer; it requires a foundation of trust built on accurate data.

This case study explores the attempted sale of a successful Construction Roofing business in Northern California. Despite generating massive buyer interest, the deal ultimately collapsed.

The reason? A significant discrepancy in financial statements created a $3.2 million valuation gap.

This business sale case study serves as a crucial lesson for business owners in the consideration stage: Honesty and accurate record-keeping are the only ways to secure a successful exit.

Key Takeaways for Business Owners

For California business owners in the $2 million to $50 million revenue range considering an exit, this case study offers vital insights:

1. No Shortcuts to Value: You cannot inflate a business's value through creative accounting. Buyers and lenders will uncover the truth during due diligence.
2. Preparation is Key: Before going to market, ensure your books are clean, accurate, and defensible. If your financials don't support your desired exit price, delay the sale and work on the business until they do.
3. Trust is Fragile: Once a buyer finds a significant error in the numbers, their trust is broken, and the deal is often dead, regardless of the price.

While this engagement did not result in a sale, it reinforces Rogerson Business Services' core philosophy: a successful exit is built on transparency, preparation, and realistic expectations.

See successful business sales done by M&A Advisor Andrew Rogerson in California

The Story: A Seller's Perspective

The owner, whom we will call "Robert Chen" to protect his anonymity, had built a substantial roofing company in Northern California over the course of a decade. He began considering an exit three years before going to market, motivated by a desire to retire and move on from the daily pressures of the industry.

Confidentiality was paramount for Robert. "I didn't want my competitors to know. I didn't want my 30+ employees to know," he explained. "I didn't want the local suppliers I did business with to know in case they pulled my credit facility." To manage this, he relied heavily on Andrew Rogerson of Rogerson Business Services (RBS), who came highly recommended by his attorney for his integrity.

At the onset, the process seemed promising. Robert was "very, very nervous" but also excited by the prospect. What surprised him most was the overwhelming response from the market. "We had over 145 buyer inquiries," Robert noted. "I was surprised by the level of interest Andrew and his Marketing Manager generated."

However, as the process moved from marketing to due diligence, the deal hit a critical snag. Robert had expectations of a $7 million sale price based on the financial picture he initially painted. But as buyers and their accountants began to scrutinize the actual numbers, the reality was different. "A big deal I didn't pay enough attention to was the importance of accurate financial statements," Robert admitted. "Each buyer was looking at them in great detail, as well as the lenders."

The Process: The "Teachable Moment"

Rogerson Business Services executed a robust marketing campaign that successfully attracted qualified buyers, including private equity groups and strategic competitors. The initial interest confirmed that the business was in a desirable sector with strong demand.

However, a deal is only as strong as the numbers that back it up. During the initial valuation and subsequent buyer diligence, it became evident that the financial statements provided by the seller were inaccurate. When the financials were recast and corrected to reflect the true performance of the business, the valuation dropped precipitously, from the owner's expected $7 million down to approximately $3.8 million.

This $3.2 million gap was insurmountable. But the issue went deeper than just the price. In M&A, trust is the currency of the deal. When buyers discover that financial representations are flawed, they rarely just lower their offer; they often walk away entirely because they lose confidence in the seller's overall integrity.

As Andrew Rogerson advises, "Dishonest numbers and flawed financials will never get a deal closed. If you are aiming for a higher number, then you need to work on the business to achieve the aimed numbers before proceeding to market. Avoid these pitfalls."

The Outcome & Lessons Learned

The business did not sell. The discrepancy between the seller's expectations and the financial reality was too great to bridge, and the inaccurate data discouraged buyers from continuing to engage.

Reflecting on the failed process, Robert offered a candid assessment for other business owners: "The most important thing I learned is to have accurate financial statements, as buyers and their accountants are going to look at the financial statements in great detail."

He also expressed regret over his preparation. "As I look back, it would have been better if I had allowed more time to understand the buyers and the decisions I needed to make."

Frequently Asked Questions