Red flag explained · Numbers that disagree
Run-rate ARR far above the last 12 months' revenue
Short answer: When ARR is more than one and a half times the revenue the business actually collected over the last 12 months, either growth is very recent or the run-rate is optimistic. Both deserve evidence. Ask for monthly revenue for the last 12 months so you can see the ramp yourself.
When the checker raises it
Raised as medium severity when stated ARR is more than 1.5 times trailing 12-month revenue.
Why it matters
A price set on ARR pays for a year that has not happened yet. If the growth is real, that may be fair. If ARR is one good month times 12, you are paying for a peak.
Our Acquire.com guide gives an illustration: a listing showing $30,000 of ARR next to $16,000 of trailing revenue is claiming nearly twice what it collected.
A worked example
Composite example, not a real listing
Asking price: $75,000
ARR: $42,000
TTM revenue: $24,000
Annual profit: $18,000
Revenue verified via Stripe
Churn: 4% monthly
Business age: 2 years
Owner hours: 5 hours per week
Traffic or revenue sources typed in: Organic search 20%, Direct 40%, Referral 40%.
What the red-flag checker returns: payback of 50 months on annual profit ÷ 12, and this flag:
Medium Run-rate ARR far above the last 12 months' revenue
ARR $42,000 against trailing revenue $24,000. Either growth is very recent or the run-rate is optimistic.
Ask: Can you share 12 months of monthly revenue so the ramp is visible?
The same example also raises: Concentration not disclosed.
What to check
- Ask for monthly revenue for the last 12 months.
- Ask what drove the growth, and whether it came from one customer or one channel.
- Work out payback on trailing profit as well as on the run-rate.
Questions to send the seller
- Can you share 12 months of monthly revenue so the ramp is visible?
- Is the stated ARR a run-rate or contracted revenue, and which figure is current?
- Can you share 12 months of monthly revenue so the ramp to the current run-rate is visible?
Related flags
Useful next
- Acquire.com listing red flags
- Free red-flag checker: paste a listing and see which flags it raises.
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The checker is a set of plain rules, not an AI model, and its flags are prompts for questions, not verdicts. Composite examples are invented. Informational screening only, not investment, legal or tax advice.