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, rather than sitting in the agreement as a formality neither of them fully understood.

A due diligence condition in a business purchase agreement does not delay the contract — the agreement binds both sides the moment it is signed. What it does is give the buyer a defined window to investigate the target business — its financial statements, contracts, leases, and liabilities — and make the buyer's obligation to complete the purchase conditional on being satisfied with what that investigation turns up. 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, with specific notice steps required to exercise it. We confirmed the exact deadline, calendared it well ahead of the expiry date, and mapped out what a valid notice of non-satisfaction would need to say, so that nothing was lost to a missed formality while the financial review itself was still underway and the real work had not yet finished.
2. Requested the full financial record, not just the broker's summary. A listing summary is marketing, prepared to make a sale, not to inform a buyer's decision. We asked for several years of tax filings, bank statements, merchant processing records, and the underlying bookkeeping behind every add-back in the seller's normalization worksheet, and flagged the gaps in writing when Rosario's side was slow to produce supporting detail for particular line items, rather than letting silence stand in for an answer.
3. Recast the earnings independently rather than accepting the broker's total. Working through each proposed add-back against the actual bank and tax records rather than the summary sheet, we rebuilt the earnings figure from the ground up. That rebuild is what surfaced the vehicle lease, the family member's salary, and the one-time equipment sale as items that did not genuinely belong in a recurring earnings calculation, each one confirmed against a document rather than taken on the seller's word.
4. Explained the gap in plain terms so the clients could make their own decision. Yanni and Analyn needed to understand not just that the number was wrong, but why — how a real, functioning business with genuine customers can still be listed at a price that quietly assumes away costs a new owner would actually have to carry every month. That distinction, once they understood it, shaped every decision that followed, including how firmly they were willing to push back.
5. Presented the recast numbers to the seller's side and reopened the price. Rather than walking away immediately or accepting the gap quietly, we set out the recasting in writing, with the supporting bank and tax records attached, and used the due diligence condition as leverage to renegotiate before it expired. A seller facing a documented, defensible earnings gap generally has two realistic options: renegotiate in good faith or lose the sale outright, since the buyer can exit the condition cleanly and walk away with no penalty.
6. Advised on a walk-away threshold before the negotiation began. Before opening talks with the seller's broker, we sat down with Yanni and Analyn and agreed, in advance and on paper, the price below which the deal still made financial sense and above which it did not, based on the recast earnings rather than hope. That meant the final decision was made calmly ahead of time, not under pressure in the middle of a live back-and-forth where emotion tends to creep into the numbers.

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 they were locked into completing the purchase, 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 rather than what a normalization worksheet said it earned. Rosario kept the franchise's territory listings updated for a short handover period, and Yanni and Analyn spent their first season learning the route without the added pressure of debt service sized for earnings the business never actually produced.

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