Due Diligence Red Flags: 16 Things to Watch Before You Buy a Business

When you're buying a business, you're not just purchasing income—you're taking on its risks, baggage, and hidden issues. That’s why due diligence is your most important filter. Get it right, and you walk into a strong deal. Get it wrong, and you might inherit someone else’s chaos.

To make this easier, I’ve created a Due Diligence Red Flag Checklist—designed specifically for business buyers in Australia. You can download the full PDF version below or use this post to get started.

---

Financial Red Flags

These are the first numbers to look at—and the ones that are easiest to fudge.

• Inconsistent revenue or profit trends – Could be seasonality, mismanagement, or manipulation.
• Limited financial transparency – If they can’t show you proper P&Ls, walk away.
• Heavy reliance on cash – High risk of undeclared income and ATO issues.

---

Staff & Payroll Red Flags

People make businesses—but they also introduce risk.

• No employment contracts – This leaves you exposed to disputes and Fair Work penalties.
• High staff turnover – Suggests deeper issues in leadership or culture.
• Unusual payroll activity – Think off-books payments or last-minute raises.

---

Operational Red Flags

These show whether the business will actually run without the current owner.

• No documented systems – You'll be rebuilding from scratch.
• Over-reliance on the owner – If they’re key to everything, what happens when they’re gone?
• Customer concentration – One big client = massive risk.

---

Legal & Risk Red Flags

These are the landmines that could destroy your investment.

• No lease or insecure premises – They could lose their location at any moment.
• Pending litigation – You don’t want to inherit legal battles.
• Unclear IP ownership – If they don’t own their name, logo, or website, neither will you.

---

Scoring Guide

Here’s how to interpret what you find:

• 0–3 Red Flags → ✅ Low Risk – Proceed with care
• 4–7 Red Flags → ⚠️ Medium Risk – Review deeper before committing
• 8+ Red Flags → ❌ High Risk – Walk away or negotiate hard

---

Download the Full Checklist (PDF)

Want to keep this checklist on hand for your next deal?

👉 [Download the Due Diligence Red Flag Sheet (PDF)]
(Includes printable version, scoring table, and bonus questions)

---

Need Some Help?

If you’re serious about buying a business, you need more than gut instinct. You need structure, clarity—and a sharp eye for what’s missing. This checklist gives you that edge.

And if you want someone to walk you through your next deal and ensure you’re not flying blind, I run a 90-day coaching program just for buyers.

👉 [Book a Free Discovery Call with Me Here]