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Red flag library

The warning signs that come up again and again when buying a small business: why each one matters, how to spot it, what to ask the seller and which documents to request.

6 red flags for Customers and revenue.

Customers and revenue

6 red flags

  • One customer above 20% of revenue

    When one customer brings in more than a fifth of revenue, much of the value you are buying depends on a relationship you do not yet control.

    Severity: price it inAll business models

  • Contracts that end on a change of control

    Some customer, supplier and licence contracts let the other side walk away or renegotiate when the business is sold. Find them early and make consent part of the deal.

    Severity: fixableAll business models

  • Rising churn, refunds or chargebacks

    Customers leaving faster, asking for their money back or disputing payments are early signs that revenue will shrink, often before the headline numbers show it.

    Severity: price it inSaaS, Ecommerce, Content, App, Marketplace, Agency or services

  • Heavy discounting to hit targets

    Revenue bought with deep discounts, cut-price prepaid deals or stock pushed onto resellers flatters the final year before a sale and is unlikely to last.

    Severity: price it inAll business models

  • Dependence on one marketing channel

    When most customers arrive through one ad platform, marketplace, search engine or partner, a change you cannot control can cut revenue quickly.

    Severity: price it inAll business models

  • Customer prepayments already spent

    When customers have paid in advance and the seller has spent the cash, you inherit the work of delivering without the money that paid for it.

    Severity: price it inAll business models