01
Owner add-backs that do not survive a real QofE
Personal expenses, non-recurring items, and family-member compensation that the seller treats as add-backs but the buyer's QofE team disallows. Documented in WP-001 as the most-cited adjustment category.
02
Customer concentration above 25% in top customer
Triggers a discount band on the multiple. The remediation is contractual structure and relationship-depth work in the 18 to 24 months before going to market, not diversification in the room.
03
Key-person dependency surfacing in team interviews
Often invisible in financials. Surfaces when buyers talk to the senior team. The fix is the second-in-command hire and documented decision-rights legibility.
04
Working capital target dispute
Buyer's NWC target lower than the founder expected, reducing cash at close. Documented in SRS Acquiom 2025 as one of the top three negotiation friction points.
05
Documentation gaps on customer contracts
Triggers buyer-favorable indemnification language, longer survival periods, larger escrows. Cleanup is a 90-day fix; the discount lasts the life of the deal.
06
Recurring revenue overstated
Buyer defines 'recurring' more narrowly than the founder. Multiple compresses when the buyer's definition is applied. Reconciliation is best done pre-marketing.
07
Cap table or option-pool surprises
Phantom equity, unwritten promises, expired option grants. Surface late in diligence and force restructuring just before close.
08
Vendor concentration mirroring customer concentration
Top supplier represents over 30% of COGS; switching cost is opaque. Buyer prices this the same way they price customer concentration.
09
Real estate and related-party arrangements
Founder owns the building and rents to the business at non-arm's-length terms. Triggers either a structural change at close or a discount to compensate for the unwind.
10
Outstanding litigation or threatened claims not disclosed pre-LOI
Erodes buyer trust even when individually small. The damage is to the broader diligence relationship, not just the specific item.
Compiled from WP-001 The Preparation Gap (Cordis Institute), the SRS Acquiom 2025 Lower Middle Market Deal Terms Study, and the Cherry Bekaert 2025 PE Report. Frequency data forthcoming with Q2 2026 Foundry data refresh.
This list collects the diligence finding categories most consistently named in the published research on lower-middle-market transactions. Each one is documented in at least one of WP-001, SRS Acquiom 2025, or Cherry Bekaert 2025.
How to use this
Read the top three carefully. They are the highest-frequency categories in the published record and the most likely to apply to your business. The remaining items are sector- and structure-specific. None of them appear by accident; each has a 24-month operational fix that is documented in Foundry’s frameworks and playbooks.
What is not on this list
Two categories the empirical record shows are real but did not make the headline 10 by cross-source consensus: regulatory and licensing exposures (sector-specific, low-frequency but high-impact), and intellectual property ownership questions (concentrated in tech and design-services businesses).
Sourcing
This ranking is compiled, not synthesized. Each category is attested in published research. Frequency percentages are not asserted because cross-source frequency data is not currently consistent across the three citations. The Q2 2026 Foundry data refresh will add frequency anchors per category as the underlying sources publish updated data.
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