Red flags explained

Red flags in business-for-sale listings, explained

Short answer: the free FirstPass Memo checker applies 33 plain rules to a listing's own numbers and text. Each page below explains one rule: when it fires, why it matters, a composite example run through the checker, what to check and the questions to send the seller. The rules are also published as rules.json.

Updated 7 October 2026 · 33 rules · How often each one fires

Price and earnings

• No asking price High
  Why the checker flags a listing with no asking price, what payback and multiple need, and what to ask the seller before you spend time on it.
• No profit figure High
  Why the checker flags listings that give revenue or MRR but no profit, how it works out payback in that case, and what to ask for.
• Zero or negative profit High
  Why the checker flags a business that states zero or negative profit, what you would actually be buying, and the questions to ask.
• Priced below one year of profit Medium
  Why the checker flags listings priced under one year of profit, the common reasons, and what to ask before you treat it as a bargain.
• Multiple above the typical range Medium
  Why the checker flags an asking multiple above the middle half of comparable listings, and what evidence can justify a higher price.

Trend

• Last month at or below zero High
  Why the checker flags a listing whose most recent month broke even or lost money while the average looks positive, and what to ask.
• Last month below the average Medium or high
  Why the checker flags a last month more than 20% below the average profit, how to rework payback on recent months, and what to ask.
• Revenue declining Medium or high
  Why the checker flags a listing that reports a revenue decline of 20% or more, why declines tend to continue, and the questions to ask.
• Short averaging window Medium
  Why the checker flags profit averaged over fewer than 12 months, how a short window can hide seasonality or a peak, and what to ask for.

Numbers that disagree

• ARR and MRR disagree Medium
  Why the checker flags a SaaS listing whose ARR differs from MRR times 12 by more than 15%, and how to find out which figure is current.
• ARR far above trailing revenue Medium
  Why the checker flags ARR more than 1.5 times trailing 12-month revenue, what it says about growth or optimism, and what to ask.
• MRR above collected revenue Medium
  Why the checker flags MRR more than 15% above the revenue collected last month, and how failed payments, discounts and refunds explain the gap.
• Monthly and annual revenue disagree Low
  Why the checker flags monthly revenue × 12 that differs from annual revenue by more than 10%, and how to find which months each figure covers.
• Profit higher than revenue High
  Why the checker flags a listing whose profit is higher than its revenue, what usually causes it, and what to ask the seller to correct.
• Margin above 90% Medium
  Why the checker flags profit margins above 90%, the costs most often left out, and how to rework payback with them included.

Customers and retention

• No churn figure Medium
  Why the checker flags a recurring-revenue listing that gives no churn rate, why churn decides the price, and what to ask for.
• Churn above 5% a month Medium or high
  Why the checker flags monthly churn above 5%, the arithmetic behind it, and how to judge whether new sales will keep up after the sale.
• Few paying customers Medium
  Why the checker flags subscription businesses with fewer than 25 paying customers, what it means for risk, and what to ask the seller.
• Top customer above 25% High
  Why the checker flags a single customer, sponsor or partner above 25% of revenue, and how to check whether that revenue will stay after the sale.
• Concentration not disclosed Low
  Why the checker raises a low-severity flag when a listing does not say how much revenue comes from its largest customer or partner.

Traffic and platforms

• Search-dependent traffic Medium
  Why the checker flags sites with more than 50% of traffic from organic search, how often Google updates land, and how to check a site's history.
• One channel above 60% Medium
  Why the checker flags a single non-search channel above 60% of traffic, such as paid ads, social or email, and what to ask about it.
• SEO claim versus the data High
  Why the checker flags a listing that credits SEO for its growth while its own traffic figures show less than 20% from organic search.
• Platform dependence Medium
  Why the checker flags businesses that rely on Amazon, YouTube, an app store, an ad network or another platform, and how to judge the risk.
• No traffic data Medium
  Why the checker flags content, affiliate, ad-supported and YouTube listings that give no traffic figures, and what data to ask for.

Verification, age and operations

• No connected data source Medium
  Why the checker flags listings that mention no verified or connected data source such as Stripe, PayPal or analytics, and how to check the numbers.
• Business age not stated Medium
  Why the checker flags listings that do not say how old the business is, and why history length matters for judging the numbers.
• Under 6 months old High
  Why the checker flags businesses with less than 6 months of history as high severity, and what to ask before buying a very young business.
• Under 12 months old Medium
  Why the checker flags businesses between 6 and 12 months old, what a missing full year hides, and how to ask for the history there is.
• Owner hours not stated Medium
  Why the checker flags listings that do not say how many hours a week the owner works, and how to price the owner's time into payback.
• More than 10 hours a week Medium
  Why the checker flags sellers who work more than 10 hours a week, how that time lowers real profit, and how to rework payback.
• Passive, but staffed Medium
  Why the checker flags listings described as passive or hands-off that also mention writers, VAs, developers or other contractors.
• Generic reason for sale Low
  Why the checker raises a low-severity flag for vague reasons for sale such as "other opportunities", and what to ask instead.