Case Study: Why Every Buyer Needs Due Diligence — Even on a Sub-$1M Coffee Shop

Think a small deal means limited risk? Think again.

When it comes to buying a business, size doesn’t eliminate risk. In fact, smaller deals often come with fewer systems, less formal financial oversight, and more reliance on trust - which is exactly why due diligence isn’t just for large acquisitions.

This case study shows how a targeted QoE Lite engagement with a focused Proof of Cash helped a buyer recalibrate expectations, renegotiate price, and ultimately protect both their investment and their future.

The Deal: A Boutique Coffee Shop With Big Financial Blind Spots

We were engaged by a buyer under LOI to acquire a boutique coffee business — two locations and a mobile roasting trailer — with an asking price just under $1 million.

The business appeared strong on the surface:

• Solid brand and loyal customer base

• Positive revenue momentum

• Great curb appeal and local buzz

But the buyer had already made significant life decisions based on the deal:

• Offer submitted on a new home

• Kids withdrawn from school in another state

• SBA loan application in progress with a pending personal guarantee

  
  

After discussion, we recommended a QoE Lite engagement with a strong emphasis on Proof of Cash - a right-sized approach given the deal structure and the buyer’s timeline. The goal: validate financial performance and ensure the business operated as represented historically.

What We Found: Disconnected Entities, Misclassified Inflows

The seller operated through four separate legal entities, yet financials weren’t consolidated or standardized. Each entity had its own reporting style, bank accounts, and treatment of income and expenses.

As we performed the Proof of Cash and reviewed transaction-level data, we uncovered:

• Loan proceeds and government grants recorded as revenue

• Owner capital contributions booked as income

• No documentation of intercompany transfers

• COGS manipulated through manual journal entries

Importantly, these weren’t accidental omissions — they reflected aggressive accounting decisions made by the seller’s CPA, intended to reduce taxable income but with the unintended consequence of inflating reported earnings.

“The CPA Did the Books — Isn’t That Enough?”

Buyers often assume CPA-prepared financials are inherently reliable. The reality in the small business space is very different.

Most CPAs serving Main Street and SMB clients view their role through a tax lens. Their job is often to minimize tax liability - not to present financials that are deal-ready, lender-ready, or accurate for investment evaluation.

In this case, the CPA candidly explained they had classified capital inflows as revenue “to simplify things.” While legal, these classifications significantly distorted EBITDA and masked real cash flow.

What About the SBA or Lender?

This is a critical misconception: SBA lenders do not perform due diligence on your behalf.

They are focused on:

• Buyer credit and collateral

• Loan structure

• Meeting minimum DSCR requirements (based on unverified tax returns)

In this case, the lender simply ensured the business met their debt coverage minimums on paper. They did not validate whether the returns were accurate — or whether revenue had been overstated. That responsibility falls squarely on the buyer or their diligence provider.

Our Role: Validating Value, Not Blowing Up the Deal

Through our work, we helped:

• Reconstruct real earnings using Proof of Cash and POS data

• Normalize EBITDA by removing non-operating and one-time inflows

• Support a revised valuation aligned with the business’s actual cash-generating power

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Importantly, we didn’t blow up the deal. Instead, we worked with the buyer to bring clarity, and with the seller to realign expectations — keeping everyone at the table and helping both parties converge on true market value.

The buyer realized 15x+ in hard dollar value from the diligence engagement — in the form of a reduced purchase price and stronger financial footing. But more than that, he protected his livelihood, relocation decision, and long-term investment.

Key Takeaway: Small Size Doesn’t Equal Small Risk

This wasn’t a $100M platform investment - it was a local coffee shop with a sub-$1M price tag. And yet the financials were inaccurate, unsupported, and potentially disastrous. Without diligence, this buyer would have:

• Overpaid based on inflated earnings

• Signed a personal guarantee on an underperforming asset

• Relocated his family for a business that couldn’t support debt service

It’s a powerful reminder that even simple deals can have complex financial realities. That’s where our team comes in — to help buyers cut through the noise and protect their downside.

How High Point Advisory Group Supports Buyers

At High Point Advisory Group, we support transactions ranging from $500K to $500M, with the ability to customize our scope to your needs - whether you're buying a single-location coffee shop or a strategic platform investment.

Our services include:

• Buy-Side Quality of Earnings Reports (Full and Lite versions)

• Proof of Cash & Revenue Tracing

• EBITDA Modeling Based on Tax Returns or General Ledgers

• CPA Coordination & Red Flag Reviews

• Sell-Side Readiness and Cleanup for Sellers or Brokers

Our goal isn’t to sink deals - it’s to de-risk them, provide financial clarity, and help all parties close with confidence.

Would You Buy a House Without an Inspection?

Of course not. So why would you invest six or seven figures — with personal guarantees on the line — without verifying the financials?

If you’re under LOI or thinking about buying a business, let’s talk.We’ll help you validate the numbers, avoid overpaying, and move forward with confidence.