5d (edited) • Community Wins
Part 1/3 - 3 red flags hidden
Most buyers look at the asking price, the profit, and the seller’s story.
That’s not enough.
A business can look stable on paper while already declining underneath.
Here are 3 places I would check before getting too excited about any acquisition.
1. Annual revenue can hide a decline
A seller can show you this:
2024 revenue: $2.11M
2025 revenue: $1.99M
At first glance, that only looks like a small drop.
But when you ask for monthly revenue over 36 months (ideally 5 years) , the picture can completely change.
You may discover that monthly revenue went from $195K/month to $148K/month.
That’s not stable.
That’s a decline in motion.
What to ask for:
Monthly financial statements for the last 36 months to 5 years.
What to watch:
If revenue has been declining for 12 to 18 months in a row, don’t treat it as seasonality. Treat it as a trend.
2. One big client can destroy the deal
If one client represents more than 15% to 20% of revenue, be careful.
You may not be buying a business.
You may be buying a relationship.
If that client leaves after closing, the profit you used to value the business may disappear.
What to ask for:
The top 10 clients, their percentage of revenue, and how long they’ve been clients.
What to watch:
A healthy business should not depend too heavily on one customer.
Ideally, no client should represent more than 10% of revenue, and the top 5 clients combined should stay under roughly 35% to 40%.
3. Expiring contracts can make revenue disappear
This one is easy to miss.
A business can have good historical revenue, but if a major contract expires shortly after closing, you may be buying yesterday’s numbers.
The seller may not be lying.
He may simply be showing the best version of the business.
What to ask for:
A list of key contracts, expiration dates, renewal terms, and customer concentration by contract.
What to watch:
If a large percentage of revenue comes from a contract that expires within 6 to 12 months, the purchase price needs to reflect that risk.
Simple takeaway
Don’t just ask:
“How much revenue did the business make?”
Ask:
“Where did the revenue come from, month by month, client by client, and contract by contract?”
That’s where the truth starts showing up.
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Part 1/3 - 3 red flags hidden
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