In brief: Red flags include unverifiable earnings, concentration, hidden owner workload, non-transferable assets, weak records and pressure to skip normal diligence.
Financial red flags
- Reported profit does not reconcile to source records.
- Large add-backs are weakly documented.
- Recent performance changes sharply without a credible explanation.
- Important expenses appear omitted.
Traffic or customer red flags
- One traffic source or customer dominates results.
- Analytics access is limited or inconsistent.
- Paid acquisition economics are presented without full spend.
- Retention claims cannot be reproduced.
Operational red flags
- The founder is the only person who knows key processes.
- Supplier or employee relationships are informal and fragile.
- Critical software or content is owned by a third party.
- Security, backups or documentation are poor.
Transaction red flags
- The seller pressures you to bypass normal verification.
- Key assets cannot be transferred clearly.
- Payment is requested through an inappropriate or poorly documented process.
- Material questions receive changing answers.
What to do
Pause, define the evidence that would resolve the issue and set a deadline. If the evidence does not arrive or the issue changes the economics materially, adjust the price or leave the deal.