Most listings look good on paper. The reality shows up in the details. Pull on the right threads and you will see what you are actually buying.
Your filter is simple. Is this a business that runs without the owner, or a gig that dies when the owner leaves?
Is it a business or a gig?
Start by testing transferability, not revenue. A business survives the owner. A gig collapses when the owner steps away.
- One or two techs with the owner still in a truck is a job, not a company.
- A $600K top line with two employees and the owner in the field is not a transferable business.
Unverified numbers
You cannot price what you cannot prove. Clean books are a minimum standard. If records are missing, risk is higher than the asking price admits.
- “Box of receipts” is not bookkeeping.
- No statements, no CRM data, no bank ties to revenue. Treat it as a steep discount or walk.
Inflated add-backs and creative SDE
Incentives drive behavior. When every personal expense is “added back,” expect more surprises. If ethics are loose with the IRS, they will be loose with you.
- Personal remodels, big “meals and entertainment,” and random Amazon spend labeled as add-backs are a red flag.
- Every dollar they inflate becomes three or four in enterprise value. Assume incentive to misrepresent.
Customer concentration that hides in plain sight
Top line can mask fragility. One relationship can carry the whole book. Your job is to find who really controls demand.
- Retail partnerships at 80 to 90 percent of revenue. Lose it and the business disappears.
- Home warranty lead flow that looks like many customers but is really two companies.
- Property managers or holding companies that appear as hundreds of names but roll up to one owner. Reconcile deposits and payors to find the truth.
Owner dependence and institutional knowledge
Complexity locked in one head is risk. Paper systems and tribal knowledge do not transfer on a bill of sale. If the owner is the system, you inherit a rebuild.
- Paper systems, decades of recurring work tracked in someone’s head, routes or pricing only the owner understands.
- Plan for multiple hires and a long transition, or skip it.
The owner wants to stay
This often sounds comforting. In practice it signals stalled growth and divided command. After a payday, motivation changes.
- If it sat at the same revenue for years under that owner, expect the same after you close.
- After a payday, most sellers will not grind for your plan.
Family in the business
A little is normal. A lot is a ceiling. Family clusters distort merit, stall recruiting, and complicate accountability.
- Recruiting suffers, career paths stall, culture gets political.
- If you upset one person, you risk losing a cluster.
No marketing
No marketing means no engine for growth. Referrals alone are not a strategy. Starting from zero is slow and expensive.
- Small shops without marketing rely on friends and referrals. Loyalty is thin.
- Turning on marketing from zero costs time and cash. Expect heavy lift to get channels working.
Neglected infrastructure
Neglect compounds. Old trucks and weak software point to wider issues. You can buy it, but you will rebuild it.
- Old trucks, weak uniforms, no CRM, weak tech stack. Neglect in one area usually means neglect everywhere.
- If you are doing a tuck-in, your platform can absorb it. If it is a standalone, you will fix every department.
Gross margin tells the story
Margin is the scoreboard for operations. Low gross margin exposes weak pricing, poor training, and the wrong sales habits. Fixable, yes, but slow.
- Low gross margin points to weak pricing, no training, repair-only culture, and poor sales habits.
- It is fixable, but it is slow. Think years, not weeks.
- Example from the field. A residential HVAC shop at 29 percent GM looked like a price issue. The real fix required training, culture change, and new sales process.
How to protect yourself
Treat price and diligence like guardrails. Pay for what it is, not what the broker calls it. Verify the inputs that actually run the machine.
- Get it cheap if you are buying a job, not a business.
- Tie revenue to bank statements, CRM exports, and source reports.
- Map where leads come from and who controls them.
- Pressure test margin, not just EBITDA.
- Plan for the true replacement cost of the owner.
The shift that keeps you out of trouble
Do not fall in love with the top line. Buy what will survive without the seller.
If the numbers, customers, and systems hold up under scrutiny, you have a business. If they rest on one person or one partner, you have a risk you must price.
