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Red flag library

The warning signs that come up again and again when buying a small business: why each one matters, how to spot it, what to ask the seller and which documents to request.

6 red flags for Seller and process.

Seller and process

6 red flags

  • A vague reason for sale

    The seller cannot or will not say clearly why the business is for sale, or the story changes. The real reason often tells you what to check first.

    Severity: price it inAll business models

  • Reluctance to share records

    The seller delays, filters or refuses access to the financial and operating records you need to check the listing. Past a certain point, what you cannot see matters more than what you can.

    Severity: deal breakerAll business models

  • Pressure to skip diligence

    The seller or broker pushes you to commit before you have checked the business, often with tight deadlines, rival bidders or a discount for speed. A sound business survives checking.

    Severity: deal breakerAll business models

  • Refusal of any seller finance or earn-out

    The seller wants the whole price in cash at completion and will not defer any part of it. That can be a reasonable preference, but it can also mean the seller does not expect the business to keep performing.

    Severity: price it inAll business models

  • Repeated relisting or a long time on the market

    The business has been for sale for many months, or withdrawn and listed again, sometimes with a new broker, description or price. Other buyers may already have looked and walked away.

    Severity: price it inAll business models

  • Figures that change between the teaser and later documents

    Revenue, profit or add-backs in the teaser or listing do not match the information memorandum, the management accounts or the tax returns. Some changes have a simple explanation; others mean the first figures were never real.

    Severity: price it inAll business models