Answers
What are the red flags when buying an online business?
Short answer: The red flags that matter most are numbers that disagree, short history, heavy dependence on one channel, customer or platform, and an owner whose work is not counted. Our free checker applies 33 rules; in the October 2026 sample, at least 10 of 36 listings raised a high-severity flag. Each flag links to a seller question.
What are the main families of red flags?
Red flags in online-business listings fall into five families: numbers that disagree with each other, a short or declining history, dependence on one channel, customer or platform, owner work that is not counted, and figures that are missing or unverified. FirstPass Memo's free checker applies 33 rules across these families, and each rule has its own page with the reason and a question for the seller.
- Numbers that disagree: profit above revenue, margin above 90%, MRR above collected revenue.
- History and trend: under 6 months old, revenue declining, last month below the average.
- Concentration: top customer above 25%, one channel above 60%, platform dependence.
- Owner work: more than 10 hours a week, called passive but relies on staff.
- Disclosure: no connected data source, no churn figure, generic reason for sale.
How often does each red flag fire in real listings?
In FirstPass Memo's October 2026 sample of 36 online-business listings priced $10k–150k, at least 10 raised a high-severity flag and 27 raised at least one flag on the rules we could measure. The most common were a margin above 90% (12 of 36 (33%)) and less than six months of history (9 of 36 (25%)).
| Rule | Group | All types (36 listings) | SaaS and software (20) |
|---|---|---|---|
| No asking price | Price and earnings | 0 (filtered out) | 0 (filtered out) |
| No profit figure | Price and earnings | 0 (filtered out) | 0 (filtered out) |
| Zero or negative profit | Price and earnings | 0 (filtered out) | 0 (filtered out) |
| Priced below one year of profit | Price and earnings | 1 of 36 (3%) | 0 of 20 (0%) |
| Multiple above the typical range | Price and earnings | not published | not published |
| Last month at or below zero | Trend | none seen in 36 summaries | none seen in 20 summaries |
| Last month below the average | Trend | none seen in 36 summaries | none seen in 20 summaries |
| Revenue declining | Trend | none seen in 36 summaries | none seen in 20 summaries |
| Short averaging window | Trend | at least 1 of 36 | none seen in 20 summaries |
| ARR and MRR disagree | Numbers that disagree | none seen in 36 summaries | none seen in 20 summaries |
| ARR far above trailing revenue | Numbers that disagree | none seen in 36 summaries | none seen in 20 summaries |
| MRR above collected revenue | Numbers that disagree | none seen in 36 summaries | none seen in 20 summaries |
| Monthly and annual revenue disagree | Numbers that disagree | none seen in 36 summaries | none seen in 20 summaries |
| Profit higher than revenue | Numbers that disagree | 1 of 36 (3%) | 0 of 20 (0%) |
| Margin above 90% | Numbers that disagree | 12 of 36 (33%) | 7 of 20 (35%) |
| No churn figure | Customers and retention | not measured | not measured |
| Churn above 5% a month | Customers and retention | none seen in 36 summaries | none seen in 20 summaries |
| Few paying customers | Customers and retention | none seen in 36 summaries | none seen in 20 summaries |
| Top customer above 25% | Customers and retention | none seen in 36 summaries | none seen in 20 summaries |
| Concentration not disclosed | Customers and retention | not measured | not measured |
| Search-dependent traffic | Traffic and platforms | none seen in 36 summaries | none seen in 20 summaries |
| One channel above 60% | Traffic and platforms | none seen in 36 summaries | none seen in 20 summaries |
| SEO claim versus the data | Traffic and platforms | none seen in 36 summaries | none seen in 20 summaries |
| Platform dependence | Traffic and platforms | at least 8 of 36 | at least 2 of 20 |
| No traffic data | Traffic and platforms | not measured | not measured |
| No connected data source | Verification, age and operations | not measured | not measured |
| Business age not stated | Verification, age and operations | 5 of 36 (14%) | 4 of 20 (20%) |
| Under 6 months old | Verification, age and operations | 9 of 36 (25%) | 7 of 20 (35%) |
| Under 12 months old | Verification, age and operations | 2 of 36 (6%) | 1 of 20 (5%) |
| Owner hours not stated | Verification, age and operations | not measured | not measured |
| More than 10 hours a week | Verification, age and operations | none seen in 36 summaries | none seen in 20 summaries |
| Passive, but staffed | Verification, age and operations | none seen in 36 summaries | none seen in 20 summaries |
| Generic reason for sale | Verification, age and operations | none seen in 36 summaries | none seen in 20 summaries |
Each listing ran through the red-flag checker with its stated price, profit, revenue and age plus the short description the aggregator carries. "Not measured": the rule fires when something is missing, and a truncated summary cannot show that. "At least": the rule fires on something stated in the text, and full listings may say more. "Not published": the rule compares with Empire Flippers ranges. On the rules we could measure, at least 10 of 36 listings raised a high-severity flag and 27 raised at least one flag. Same sample, method and licence as the October 2026 benchmarks.
Which red flags should end a deal, and which need a question?
A red flag should end a deal when the seller cannot or will not show the source behind it, for example profit above revenue with no explanation, or a refusal of any read-only access. Most other flags, such as a young business or one dominant channel, are reasons to ask a question and adjust the price rather than walk away. The checker marks each flag as high, medium or low severity to help sort them.
What does a listing with several red flags look like?
The composite newsletter listing below raises eight flags, including a high-severity one: its largest sponsor is 40% of revenue. It is also seven months old, calls itself passive while relying on a freelance writer, and states a 97% margin.
Composite example, not a real listing
Asking price: $65,000
Average monthly revenue: $3,000
Average monthly profit: $2,900
Top customer: largest sponsor is 40% of revenue
Business age: 7 months
Fully passive: a freelance writer prepares each issue
Traffic sources typed in: Email 70%, Social 20%, Referral 10%.
What the red-flag checker returns: a payback of 22.4 months (1.87× annual profit) on average monthly profit, and these flags:
High Top customer is 40% of revenue
If that customer leaves after the sale, a large part of the profit leaves with it.
Ask: Is that customer under contract, and have they been told about the sale?
Medium Email is about 70% of traffic
One channel carries most of the traffic, so the business depends on it staying as it is.
Ask: What is behind the email traffic, and how durable is it?
Medium Very high margin (97%)
Margins this high usually leave out the owner's time, contractors, tools or payment fees.
Ask: Can you list every recurring cost, and what it would cost to replace your own time?
Medium No churn figure for a recurring-revenue business
Churn decides how much of today's revenue will still be there in a year. Without it, the price is a guess.
Ask: What were monthly customer churn and revenue churn for each of the last 12 months?
Medium About 7 months of history
Less than a full year, so seasonality and longer-term churn are not visible yet.
Ask: Can you show monthly revenue and profit since launch, with the main source of new customers each month?
Medium Called passive, but relies on staff or contractors
The text describes the business as passive while also mentioning people who do the work.
Ask: Who are the contractors, what does each cost, is that cost in the P&L, and will they stay?
Medium Owner hours not stated
You need to know how much work comes with the business, and whether it is in the P&L.
Ask: How many hours a week do you and any contractors spend, and on which tasks?
Medium No connected data source mentioned
The figures appear to be typed in by the seller. Nothing in the text says revenue or traffic is connected from Stripe, PayPal, analytics or a marketplace check.
Ask: Can you give read-only access to the payment processor and analytics, or exports that match the P&L?
None of these flags means the newsletter is a bad buy. Together they mean the price should reflect a young business that depends on one sponsor and one contractor, and that you should see the sponsor contracts before an offer.
How do I check a listing for red flags quickly?
Paste the listing text into the red-flag checker, add the price, profit and traffic sources if they are not in the text, and it returns payback, the asking multiple and the top flags with a question for each, in your browser, without sending what you paste. Then read how to tell if revenue is fake for the checks that need the seller's data, or browse every rule explained.
Sources
- FirstPass Memo, online-business listing benchmarks, October 2026, our own data, CC BY 4.0
- FirstPass Memo, red-flag checker rules, our own rules, published as /rules.json
Related
- Red flags explained
- Free red-flag checker
- How to tell if revenue is fake
- Listing benchmarks and flag frequency
- Why would someone sell a profitable website?
- Questions to ask a seller
- Glossary of listing terms
- More questions buyers ask
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Composite examples are invented and labelled. Figures from other sites are quoted with a link and the date we read them; FirstPass figures are asking prices and seller-stated profit, not sale prices. Informational screening only, not investment, legal or tax advice.