Some listings sparkle — clean photos, juicy SDE, glowing broker copy.
But scratch the surface, and the whole thing leaks risk like a cracked oil drum.
Whether you’re buying your first small business or screening your tenth, here are 5 red flags that kill deals instantly — no matter how charming the seller or how “promising” the pitch.
Reason #1: No Financials — or a Frankenstein File Dump
If the seller “lost access to QuickBooks” or hands you a 94-tab Excel monster with broken formulas and handwritten notes… abort.
This isn’t a spreadsheet problem — it’s a credibility crisis.
If they can’t track profit, they probably can’t make any.
Without clean books, you can’t verify earnings, margins, or cash flow. That’s not due diligence — that’s guesswork with a down payment.
Reason #2: SDE That Requires Owner Wizardry
The listing says $375K SDE.
But the owner is:
- Working 70-hour weeks
- Doing sales, ops, janitorial, and TikTok
- The only person who knows how anything works
That’s not a business. That’s a one-person circus with no net.
If replacing the owner breaks the business, there is no business.
Reason #3: Revenue Cliff With No Story
A dip is fine. A cliff with no explanation? Huge problem.
You ask, “Why did sales drop 40% last year?”
They mumble something about “seasonality” or “a weird year.”
Translation: No plan. No clue. No comeback.
If the revenue’s in freefall and the seller’s shrugging — walk.
Reason #4: Customer Concentration Over 40%
If one client makes up half the revenue, you’re not buying a business — you’re inheriting a hostage negotiation.
Anything over 30–40% means you either renegotiate the price — or walk.
Because if that customer leaves, the business craters.
Reason #5:. Skeletons in the Legal Closet
Pending lawsuits. Back taxes. “Verbal” supplier contracts.
If you hear phrases like:
- “We’ve always done it that way.”
- “My cousin handles that under the table.”
- “Don’t worry, it’s not in writing — but it’s solid.”
Get out. These aren’t quirks. They’re time bombs.
If the legal mess can eat your profit, you're not buying a business — you're buying a liability.
Bottom Line: Some Deals Deserve to Die
You can fix weak marketing. You can renegotiate price.
But you can’t fix bad books, shaky ethics, or hostage-risk customers.
If even one of these flags pops up? Cool the pen.
If two show up? Run — and don’t look back.
Use Acquidex to filter the fakes, the fluff, and the financial fiction — before they waste your time or drain your wallet.
Disclaimer
This article is for informational purposes only and does not constitute financial, legal, or investment advice. Always consult with a qualified professional before making any acquisition decisions.
Avery Hastings, CPA
Avery Hastings, CPA lives in Tokyo, helping first-time buyers cut through the noise and avoid bad deals. When she's not tearing apart small biz P&Ls, you’ll find her sipping a Pauillac red or carving through powder on her snowboard in the Japanese Alps.