Financial Red Flags
☐Revenue concentrated in 1–3 customers (>30% from any single customer)
☐EBITDA add-backs exceed 20% of reported EBITDA
☐Working capital has been systematically underinvested
☐Revenue growth is from price increases, not volume
☐Owner expenses run through the business (cars, travel, family payroll)
Customer & Revenue
☐No long-term contracts — all revenue is transactional
☐Customer churn is hidden by new customer acquisition
☐Top 3 customers represent >50% of revenue
☐Revenue quality is poor — one-time projects, not recurring
☐Customer satisfaction is untracked or declining
Operational
☐No documented processes — everything lives in the owner's head
☐Key equipment near end-of-life with no replacement plan
☐Single-source suppliers for critical inputs
☐IT systems are outdated, unsupported, or homegrown
☐Inventory is stale — >20% hasn't moved in 12 months
Management & People
☐Owner is the only person who can close sales
☐No second layer of management — flat org with owner as bottleneck
☐Key employees have no employment contracts or non-competes
☐Employee turnover is high or concentrated in key roles
☐Owner plans to leave immediately post-close with no transition
Market & Competitive
☐Market is shrinking or flat — no organic growth tailwind
☐New competitors entering with better technology or pricing
☐Business is vulnerable to disintermediation (platforms, direct-to-consumer)
☐No competitive moat — competes on price alone
☐Industry is consolidating and the target is sub-scale
Legal & Compliance
☐Pending or threatened litigation (even if "routine")
☐Environmental liabilities — especially in manufacturing/industrial
☐Regulatory exposure — industry facing new compliance requirements
☐IP is unpatented, unregistered, or poorly documented
☐Customer or vendor contracts are verbal/handshake only