Red Flags When Buying a Business

Financial red flags

Earnings that cannot be reconciled to tax returns, aggressive add-backs, sudden recent revenue growth just before sale, and receivables that are aging faster than usual.

Structural red flags

One customer above 25% of revenue, no written customer contracts, a lease expiring within a year without renewal rights, and licences held personally by the seller.

Behavioural red flags

Reluctance to provide documents, changing explanations for the sale, and pressure to close quickly are all reasons to slow down rather than speed up.

Frequently asked questions

Is customer concentration always a deal breaker?

No, but it must be priced and structured for. Earnouts and holdbacks tied to retention are the standard tools.