What do I do if I find a problem during due diligence?

Finding a problem during due diligence isn’t unusual — it’s the reason due diligence exists. What matters is having the right to act on what you find, which is why a due diligence condition in the letter of intent or purchase agreement is worth insisting on before you spend real money verifying anything.

First, confirm what you’re actually looking at

Not every red flag is a deal-breaker, and some issues that look alarming at first — a one-time legal dispute, a temporary drop in revenue — turn out to have a reasonable explanation once the seller provides context. Get the facts confirmed by your accountant or lawyer before deciding how serious the problem actually is.

Options short of walking away

• Renegotiate the price to reflect the risk or cost the problem represents.
• Ask for a holdback or escrow that ties part of the purchase price to the issue being resolved or not recurring.
• Require the seller to fix the problem, such as paying off a lien or resolving a dispute, before closing.
• Add or tighten a representation and indemnity specific to the issue you found.

When walking away is the right call

Some findings — fraud, materially misstated financials, or a liability large enough to change the economics of the deal — are reasons to exercise your right to walk away rather than negotiate around them. A due diligence condition exists specifically so you can exit cleanly if what you find changes the deal you thought you were making.

Get it in writing either way

Whatever you decide, document it. If you’re proceeding despite a known issue, make sure the purchase agreement reflects any price adjustment, holdback, or indemnity tied to it, so there’s no ambiguity later about what was disclosed and what you agreed to accept.