red flags I look for before taking a company to market
Most business owners think the biggest risk in selling their company is finding the right buyer. In reality, the biggest risk is going to market before the business is ready.
As a sell-side M&A advisor, I’ve learned that the fastest way to kill valuation — or kill a deal entirely — is to ignore the red flags that buyers will inevitably uncover. The truth is simple: if I can spot these issues early, so can every serious buyer.
Here are the red flags I look for before I agree to take a company to market.
1. Owner dependency that threatens continuity
If the owner is the rainmaker, the operator, and the problem-solver, buyers see fragility — not value.
Red flags include:
No second-in-command
Key customer relationships tied to the owner
Processes that live only in the owner’s head
A business that can’t run without its owner isn’t a business — it’s a job with employees.
2. Financials that don’t tell a clean, credible story
Buyers don’t expect perfection, but they do expect clarity.
I look for:
Inconsistent financial statements
Unexplained add-backs
Cash-based accounting with no normalization
Commingled personal and business expenses
If the numbers raise questions, buyers assume the worst and discount accordingly.
3. Customer concentration that magnifies risk
When one customer represents 20–40%+ of revenue, buyers immediately start modeling downside scenarios.
The red flags:
No long-term contracts
No diversification strategy
No documented relationship management
Customer concentration doesn’t kill deals — unmanaged concentration does.
4. Compliance gaps that could explode during diligence
This is where deals quietly die.
I look for issues in:
HR and payroll compliance
Licensing and regulatory filings
Contract hygiene
Data privacy practices
Buyers don’t want to inherit a legal mess. If compliance isn’t tight, valuation takes a hit or the buyer walks.
5. Operational fragility hidden beneath strong financials
A company can be profitable and still operationally brittle.
Red flags include:
No documented SOPs
Outdated systems
Tribal knowledge instead of processes
Reactive, not proactive, operations
Buyers pay premiums for resilience, not chaos masked by revenue.
6. A leadership team that isn’t aligned with a sale
You can feel this within minutes of meeting the team.
Red flags:
Key employees unaware of succession plans
Compensation misaligned with retention
Cultural instability
Fear of post-closing change
If the team isn’t ready, the business isn’t ready.
7. Unrealistic valuation expectations
This is the quiet deal killer.
Red flags:
“My friend sold for X, so I should too”
Valuation based on emotion, not metrics
Anchoring to a number without understanding structure
The best outcomes happen when expectations are grounded in market reality.
Why these red flags matter
Buyers don’t pay for potential — they pay for predictability.
When these issues are addressed early, sellers:
✅ Command higher valuations ✅ Attract better buyers ✅ Negotiate stronger terms ✅ Move through diligence faster ✅ Reduce post-closing risk
When they’re ignored, deals stall, drag, or die.
The takeaway for founders
If you’re thinking about selling in the next 12–36 months, the smartest move you can make is to identify and eliminate these red flags now. Preparation isn’t just about avoiding problems — it’s about creating leverage.