Twelve red flags worth walking away from

Not every red flag kills a deal. Most are priceable. The skill is knowing which is which.

Fatal unless resolved

1. The seller will not produce bank statements or tax returns. There is no benign explanation that survives contact with a lender. Everything you might do next rests on figures you cannot verify. Stop.

2. The landlord will not consent to assignment. On a location-dependent business, the lease is the business. A landlord entitled to withhold consent is a landlord entitled to reprice your deal after you are committed. Get consent in writing before you spend money on professionals.

3. A material licence will not transfer and cannot be reissued in time. A gap between closing and licensing is lost revenue on day one, and in some categories it is a closure.

4. An open environmental discharge with no closure determination. Contractual indemnity is not the same as a clean site. Even where the landlord carries primary responsibility, you can still lose access, be shut down, or find the indemnity does not run to you as assignee.

Expensive, but priceable

5. A large share of add-backs with no paperwork. Common, and usually optimism rather than deception. Price on documented earnings and offer an earn-out for the rest. If the seller is right, they get paid.

6. Customer concentration above about 20%. Ask when the relationship was last put out to tender, whether it is contracted, and whether it is with the business or with the departing owner. Then structure around it: an earn-out tied to that customer staying is the standard answer.

7. Payroll far below the category norm. Almost always means the owner is working unpaid hours. Compute what replacing them costs and take it off the earnings before you value anything.

8. Lease term shorter than the loan. A lender sizes the loan to the lease. Extend the term, or accept a shorter amortisation and a lower financeable price.

9. Deferred capital expenditure. Old coolers, tired vehicles, a roof at end of life. Get a condition survey, price the replacements, and deduct.

10. Declining revenue. Two down years is not automatically fatal, but the explanation matters enormously. A lost contract you can win back is different from a category in structural decline.

The subtle ones

11. The listing changed while it was on the market. Advertised cash flow that rose. A reason for selling that was rewritten. A founding year that moved. None of these is proof of anything, and each deserves a written explanation. Archived versions of listings are public, and a buyer who has read them is negotiating from a different position than one who has not.

12. The seller resists all standard protections. A diligence contingency, an inventory count, a lien search, a modest holdback. These are routine. Resistance to one may be a legitimate commercial position. Resistance to all four tells you more than any individual document will.

How to hold them

Two failure modes, both costly.

Flagging everything. A buyer who treats every finding as a crisis exhausts their own goodwill, the broker's patience and their capacity to distinguish. If the twelve items above all get the same reaction, none of them is getting the right one.

Flagging nothing. Momentum is powerful. By the time you have spent $8,000 on lawyers and told your family you are buying a business, walking away feels like failure rather than judgement.

The antidote to both is deciding in advance. Write down your stop conditions before you are attached, be specific about the numbers, and re-read them when something surfaces.

The reframe worth keeping

A red flag is not a reason to abandon a deal. It is a reason to change its price, its structure, or its conditions.

The seller wants to sell. You want a business at a price that works. Most findings are a conversation about which of you carries a particular risk and what that is worth — not a verdict on whether a conversation should happen at all.

Only walk when the risk cannot be priced, cannot be structured around, and cannot be resolved by somebody producing a document they should already have.