How Due Diligence Caught Inflated Numbers in a Milton Franchise Sale

The situation

Yanni had spent almost fifteen years running landscaping crews for other people. Analyn drove transit routes on a schedule that rarely matched his. Between them they had put aside a modest amount over several years, enough that owning something of their own finally felt possible. When a business broker listed a residential lawn care and snow removal franchise resale in Milton, it looked like the right fit: a recognizable service model, an existing customer base, and a seller, Rosario, who said he was retiring after running the territory for close to a decade.

The asking price was roughly $550,000. Rosario's listing summary showed adjusted annual earnings of about $180,000, which the broker framed as a fair multiple for a stable, established route. Yanni and Analyn had never bought a business before. They came to Treadstone Law after they had already signed a preliminary offer with a due diligence condition attached, wanting help understanding exactly what they were about to commit to and making sure the condition did real work before it expired.

A due diligence condition in a business purchase agreement gives the buyer a defined window to investigate the target business — its financial statements, contracts, leases, and liabilities — before the deal becomes binding. If the buyer is not satisfied with what they find, the condition allows them to walk away without penalty, provided they act within the deadline and follow the notice steps the agreement sets out. That window is where the real work of buying a business happens, and it was about to matter a great deal.

What the review found

Franchise resale listings almost always quote what brokers call adjusted or normalized earnings, sometimes described as adjusted EBITDA — earnings before interest, tax, depreciation and amortization, adjusted further to add back expenses the seller argues a new owner would not have to pay. The logic is reasonable in principle. A retiring owner's personal vehicle lease, an above-market salary paid to a family member, or a one-time expense unrelated to ongoing operations can distort a business's true, recurring profitability if left in the numbers unadjusted. The trouble is that normalization is also where an overstated business quietly gets built, because every add-back a seller proposes shifts the earnings figure — and the sale price — upward.

Our review of Rosario's financial statements, tax filings, and supporting bank records found that several of the add-backs used to reach the $180,000 figure did not hold up. A route vehicle lease claimed as a discretionary personal expense turned out to be the truck used daily for service calls — a cost any new owner would keep paying. A family member's salary, added back in full as unnecessary, was in fact paying for real bookkeeping and dispatch work that someone would still need to do. And a meaningful one-time gain from selling older equipment the year before had been folded into ordinary revenue instead of being excluded as non-recurring.

Once those items were removed and the earnings recast to reflect what the business would actually generate under normal ownership, true adjusted earnings came in closer to $95,000 a year — roughly $85,000 lower than what the listing had claimed. Applied to the same rough multiple the broker had used to justify the original price, fair value for the business sat closer to $285,000, not $550,000. The business itself was real, with real customers and a real service history. It simply was not worth what the numbers on paper suggested.

What we did

1. Reviewed the due diligence condition before the clock ran out. The agreement gave Yanni and Analyn a limited window to investigate and either confirm the deal or walk away. We confirmed the deadline and the exact notice steps required to exercise the condition, so nothing was lost to a missed formality while the financial review was underway.
2. Requested the full financial record, not just the summary. A listing summary is marketing. We asked for several years of tax filings, bank statements, and the underlying bookkeeping behind every add-back in the seller's normalization worksheet, and flagged the gaps when Rosario's side was slow to produce supporting detail for particular line items.
3. Recast the earnings independently. Working through each proposed add-back against the actual records, we rebuilt the earnings figure from the ground up rather than accepting the broker's total, which is what surfaced the vehicle lease, the family salary, and the one-time equipment sale as items that did not belong in a recurring earnings calculation.
4. Explained the gap in plain terms to the clients. Yanni and Analyn needed to understand not just that the number was wrong, but why — how a real, functioning business can still be listed at a price that assumes costs a new owner would actually have to carry. That distinction shaped every decision that followed.
5. Presented the recast numbers to the seller's side and reopened the price. Rather than walking away immediately, we set out the recasting in writing, with the supporting records, and used the due diligence condition as leverage to renegotiate. A seller facing a documented, defensible earnings gap generally has two options: renegotiate or lose the sale, since the buyer can exit the condition cleanly.
6. Advised on a walk-away threshold in advance. Before negotiations opened, we agreed with the clients on the price below which the deal made financial sense and above which it did not, so the decision wasn't made under pressure in the middle of back-and-forth with the seller's broker.

The outcome

Rosario's side did not dispute the recasting once the underlying records were laid out. After a round of negotiation, the parties agreed to a revised purchase price of about $310,000 — still a premium over the strict recast figure, reflecting the value of the existing customer contracts and route territory, but nowhere near the original $550,000 asking price. Yanni and Analyn closed the purchase at that revised number.

Had they proceeded at the original price, they would have paid for roughly $85,000 a year in earnings that did not actually exist — a gap that, on a $550,000 purchase, would have taken years of real operating profit simply to close. Instead, the due diligence condition did exactly what it was meant to do: it gave them a documented basis to walk away or renegotiate before signing became binding, rather than discovering the shortfall in their first year of ownership with no recourse. The business they eventually bought is the same route, the same trucks, the same customers — bought at a price that reflects what it actually earns.

What you can learn from this