Buying a Rival's Online Platform: When the Numbers Didn't Hold Up

The situation

Ayesha ran a mid-sized construction company that had spent years building its business the traditional way: referrals, repeat clients, a crew that showed up on time. A newer competitor had taken a different approach — an online platform where homeowners could post renovation projects and get matched with contractor members who paid a monthly fee to receive leads. The platform had grown quickly, and Ayesha had watched more than one of her own potential jobs get pulled into it before she ever heard about them.

When the two founders behind the platform quietly put it up for sale, Ayesha saw an opportunity to buy her way into the digital side of the market rather than compete against it. The founders were Ji-ho, a specialist physician who had put up the original capital and stayed involved as a part-time co-owner, and Eun-ji, who had run the platform day to day since it launched. Neither wanted to keep operating it long-term — Ji-ho's medical practice left little time for a side business, and Eun-ji was ready to move on to something new.

The founders' asking price was built around a multiple applied to the platform's reported annual recurring revenue — the yearly subscription fees paid by contractor members to stay listed and receive leads. That figure, as presented in early conversations, was about $1,400,000, and the parties had informally discussed a deal in the range of $7,000,000 based on a multiple common for platform businesses with steady, repeatable income. Ayesha retained Treadstone Law once she had a signed letter of intent in hand and wanted to move toward a binding purchase agreement.

What the review found

A letter of intent is a preliminary document that sets out the general terms both sides expect a deal to follow — price, structure, key conditions — but it is not the binding purchase agreement itself, and it is exactly the point where proper due diligence needs to begin, before either side gets too attached to a number. Our team worked alongside Ayesha's accountant to review the financial records behind the $1,400,000 recurring revenue figure that the asking price was built on.

Recurring revenue matters enormously to how businesses like this one get valued. A dollar of subscription income that repeats every month is worth far more to a buyer, and commands a higher multiple, than a dollar collected once and never again — because the first is predictable and the second is not. Buyers pay a premium specifically for the predictability, which is why the classification of revenue as "recurring" versus "one-time" has a direct and outsized effect on price.

The review found that roughly $260,000 of the reported recurring revenue was not recurring at all. When new contractors joined the platform, they paid a one-time onboarding fee to have their profile built and verified — a fee charged once, never repeated. Eun-ji's bookkeeping had recorded these onboarding fees in the same monthly revenue category as the ongoing subscription fees, without separating them out. Nothing in the records suggested this was done to deceive a buyer; the platform had never been through a sale process before, and the bookkeeping habit had simply never been tested against the question of what counted as truly recurring. But intent did not change the arithmetic. Once the onboarding fees were pulled out, the platform's actual annual recurring revenue was about $1,140,000 — roughly 19% lower than the figure the asking price had been built on.

Applying the same multiple the parties had already discussed to the corrected figure produced a materially lower number: about $5,700,000 rather than $7,000,000, a difference of roughly $1,300,000. That gap needed to be resolved before Ayesha could responsibly sign a binding agreement, and it needed to be documented clearly enough that both sides understood exactly why the number had moved.

What we did

1. Requested the underlying transaction data, not just the summary reports. The platform's headline revenue figures came from a dashboard the founders used for their own tracking. We asked for the raw billing records behind it — every charge, coded by type — so the recurring and one-time components could be separated with certainty rather than taken on trust.
2. Had the accountant rebuild the recurring revenue figure from those records. Working from transaction-level data rather than summary totals confirmed the $260,000 onboarding-fee overstatement and let us show, line by line, exactly which charges did not belong in the recurring category.
3. Raised the finding with the sellers' side before renegotiating price. We presented the corrected figures directly, framed as a bookkeeping classification issue rather than an accusation, which kept the conversation productive. Eun-ji's own accountant, once shown the same transaction data, did not dispute the recalculation.
4. Renegotiated the purchase price using the same multiple both sides had already agreed was fair. Rather than reopening the whole valuation methodology, we kept the multiple constant and simply applied it to the corrected recurring revenue number. That approach made the reduction feel like a correction rather than a renegotiation from scratch, which helped the deal stay on track.
5. Built a revenue representation into the purchase agreement. The agreement stated the verified recurring revenue figure as a specific, defined term and included a seller representation — a contractual promise about a fact, backed by consequences if it proves false — that the figure was accurate as of closing, with a mechanism for Ayesha to recover part of the purchase price if it later turned out to be overstated.
6. Reviewed the platform's contractor agreements and data ownership. Separately from the revenue issue, we confirmed that the platform's terms with its contractor members were assignable to a new owner and that Ayesha would actually receive full ownership of the customer and lead data the business depended on — a detail that is easy to overlook when the financial numbers are absorbing all the attention.

The outcome

The deal closed at approximately $5,750,000, reflecting the corrected recurring revenue figure applied against the multiple both sides had accepted from the start. The founders did not contest the finding once the transaction-level records were laid out, and the renegotiation added a few weeks to the process rather than derailing it — a manageable delay given what was at stake in getting the number right.

Ayesha closed on a business whose value she could stand behind, with a contractual representation in place that gave her real recourse if further inaccuracies surfaced after closing. The revenue correction alone was worth roughly $1,250,000 off the originally discussed price — money that would otherwise have been paid for income that did not actually repeat month over month. She folded the platform into her operations, giving her construction company a digital lead-generation channel to compete with directly instead of losing work to it indirectly.

For Ji-ho and Eun-ji, the sale still closed at a fair price grounded in accurate numbers, and the corrected bookkeeping habit was one they carried forward, for their own records, past the sale. No party left the transaction feeling misled, which is generally the difference between a due diligence finding that closes a deal cleanly and one that ends up as a lawsuit two years later over a misrepresentation nobody caught in time.

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