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Red Flags in Home Service Acquisitions

Red Flags in Home Service Acquisitions

Beware of these

Jack Carr
November 17, 2025

Welcome to the JackQuisitions newsletter,

I recently sat down with John Wilson to talk about the biggest red flags in home service acquisitions.

We examined the details of multiple acquisitions, and there’s quite a bit to share. Keep reading for my thoughts on these red flags.

Speaking of Acquisitions…

Are you ready to acquire a home service business but unsure of where to start?

Alan Peterson of First Internet Bank, a National Preferred SBA lender, is ready to show you the way.

Whether you're buying your first company or scaling through acquisition, Alan's “how can we” mindset and hands-on approach make him the go-to lender in the skilled trades space.

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Ready For Your Next Acquisition?

Check out these acquisition opportunities that caught my eye this week:

North Central Arkansas residential HVAC company for sale, generating $1.9M revenue and $669K cash flow with 90% residential work, minimal new construction, and over 150 maintenance agreements in place.
Residential electrical and mechanical services company for sale, generating $5.23M revenue and $906K cash flow with 40+ years of brand strength, a loyal repeat customer base, and a skilled team supporting a smooth ownership transition.
Midwest plumbing company for sale, generating $1.7M revenue and $377K cash flow with 30+ years of service, 100+ five-star reviews, and a strong residential base supported by a retail showroom and long-term lease or purchase option for the facility.

Beware of Red Flags When Buying a Business

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.

Tell Me What You’re Thinking

Have you run into any of these red flags in the past? Did you take them seriously or ignore them and hope for the best?

Share your feedback with me on X or LinkedIn.

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