Lessons from the field
Run, Don't Walk: Bad Deals, How to Spot Them, and When to Get Out
A broker with more than a hundred deals keeps two maps on his office walls: one for the deals he closed, and one for the deals that got away. Here's the story behind his worst cluster of dead deals, the red flags that a seller isn't who they claim to be, how to verify who really owns a business, and a simple two-question test for knowing when to walk away.
Quick answer
A bad deal is one that's unlikely to close, unlikely to pay, or requires compromising your ethics. Warning signs include a seller who can't prove ownership, names on the lease, licenses or tax returns that don't match the seller, a middleman who won't let you meet the real owner, pressure to skip due diligence, records that don't add up, cash-only demands and any threat or intimidation. Before listing or buying a business, verify ownership through state business records, the lease and landlord, licenses and permits, tax returns and bank statements, and a UCC lien search. If a deal fails the two-question test (will it close, and will I get paid?), cut your losses early. Tracking why deals die, as broker Lou Brill does with his “got away” map, helps you spot the next bad deal before it costs you. A free, printable seller verification checklist is available to download from this article.
Two maps on the wall
Lou Brill is a New Jersey-based business broker with more than a hundred deals behind him. On one wall of his office hangs a map covered in colored stickers, each one marking a deal he closed.
On the opposite wall hangs a second map. That one marks the deals that fell through.
“Sometimes I look at the ‘got away’ map when I'm dealing with a particularly difficult client.”
When a deal starts to feel wrong, Lou turns to that second map and asks himself a few hard questions: “Is this worth it? Will it come to fruition? Should I cut and run? Which dead deal does this remind me of?”
The Atlantic City cluster
One spot on Lou's “got away” map stands out. “I have a cluster around Atlantic City,” he says.
“I was dealing with this group of guys who told me they wanted me to be their broker,” Lou explains. They wanted him to sell several bars, restaurants and properties, and they insisted on doing it in person. “I drove down there because they insisted on dealing with me face-to-face.” That alone was unusual. “Usually, I'm like an air traffic controller. I rarely leave the office.”
It didn't take long to see that the group wasn't being honest about who owned what. “They didn't actually own the businesses,” Lou says. “Can you believe it? They literally were fronting for actual owners.” As Lou understood it, the group appeared to be bringing in brokers on behalf of the real owners, possibly for a cut.
The truth came out when a buyer tried to go around everyone to buy one of the bars directly. The buyer called Lou: “Uh, Lou, I met the owner today. And it's not your guy.” When that came to light, threats followed, aimed at the buyer, the seller and Lou himself.
“That's when I washed my hands of them. I figured, if I stick around, I might get a commission. Or I might get a broken leg. I'll cut my losses and go to the next deal.”
No money can buy back ethics
Lou's firm uses Vertica CRM, and I often talk with our clients about the deals they're working on. Lou's story is one I've never forgotten.
“Okay, Lou's story is a pretty extreme example. But every business broker has a moment when he or she thinks, ‘I've got to get away from these people. They're toxic.’” It's really hard, though, because a broker's time is money. Walking away is brutal, but often necessary.
“Sometimes the best listing that you take is the listing that you don't take.”
When I asked Lou about the Atlantic City deals, I put two questions to him. What were the odds the deal would close? About 50/50, he figured. And what were the odds he'd actually get paid his commission? “Practically zero.”
The truth is, you lay down with dogs, you get fleas. You can't stay with bad deals and bad people. The best thing you can do is forget you ever had anything to do with them, and the sooner the better.
“There is no amount of money that can pay for the heart ache and loss of ethics.”
What makes a business deal “bad”?
A bad business deal is one that is unlikely to close, unlikely to pay, or requires the broker, buyer or seller to compromise their ethics or safety. That's different from a difficult deal. Difficult deals have problems that can be solved with work: a stubborn seller, a tricky valuation, a slow lender. Bad deals have problems that can't be fixed, because the foundation is wrong.
| Difficult deal | Bad deal | |
|---|---|---|
| The seller | Demanding, but honest and the true owner | Can't prove ownership, or isn't the real owner |
| The numbers | Need explaining or adjusting | Don't add up, or keep changing |
| The process | Slow, but everyone follows it | Someone wants to skip steps or keep secrets |
| The people | Emotional, frustrated, hard to manage | Dishonest, threatening or unsafe |
| The outcome | Can close with patience and skill | Unlikely to close, or to pay, at any effort |
| What to do | Keep working it | Cut your losses early |
Lou's Atlantic City deals were bad deals from the start: the sellers weren't the owners. No amount of skill or persistence could have fixed that.
8 red flags a seller isn't who they say they are
Lou's Atlantic City sellers are an extreme case, but misrepresentation comes in many forms. Stop and verify before going further if you see any of these:
- No ownership documents. The seller can't or won't show formation papers, operating agreements or share certificates.
- Names that don't match. The lease, licenses, permits or tax returns are in someone else's name.
- A middleman controls access. You're never allowed to meet or speak with the actual owner.
- Pressure to skip steps. There's “no time” for due diligence, engagement agreements or paperwork.
- Records that don't add up. Bank deposits don't match the tax returns, or the books change from one conversation to the next.
- Cash-only demands. Requests for off-the-books payments or side deals.
- Unusual insistence on secrecy, beyond the normal confidentiality of a business sale.
- Threats or intimidation. Any threat, to you, a buyer or anyone else, means walk away immediately and, if necessary, contact the authorities.
These flags matter to buyers as much as brokers. A buyer who pays for a business the seller doesn't actually own, or one with hidden debts, may never get their money back.
| Legitimate seller | Red-flag seller | |
|---|---|---|
| Ownership | Shows formation documents and is named in state records | Avoids the question or offers excuses |
| Access | Meets you at the business and answers directly | Sends a representative and keeps the owner away |
| Records | Provides tax returns and bank statements that match | Records are missing, informal or inconsistent |
| Paperwork | Signs the engagement agreement as owner of record | Wants to skip or delay the paperwork |
| Payments | Everything through normal, documented channels | Asks for cash, side deals or off-the-books terms |
How to verify who owns a business before you list it, or buy it
Lou's buyer discovered the truth by meeting the real owner. You don't have to wait that long. These checks help confirm that the person selling a business actually owns it, and that it's free of surprises:
- Check state business records. Search the Secretary of State's business entity database to confirm the company exists, is in good standing and lists the people you're dealing with. Ask for formation documents, operating agreements or share records.
- Confirm the lease with the landlord. Make sure the tenant on the lease is the seller's company, and ask the landlord whether the lease can be assigned to a buyer.
- Check licenses and permits. Business, health, liquor and professional licenses should be in the name of the seller or their company.
- Match tax returns to bank statements. Deposits should line up with reported revenue, and the returns should be filed under the same entity.
- Run a UCC lien search, and ask for tax clearance. A lien search with the Secretary of State shows debts secured against the business's assets, and can even reveal that a seller doesn't own what they're selling, as one lien search case shows. Tax clearance certificates protect buyers from inheriting the seller's unpaid taxes, which San Francisco's guide to buying an existing business calls successor liability.
Finally, make sure the engagement agreement is signed by the owner of record, the person or company that legally owns the business. If the person in front of you can't sign it, you're not dealing with the seller.
And meet the owner at the business, during business hours, more than once. (This is practical guidance, not legal advice. Buyers should work with an attorney and accountant on due diligence.)
Free download: Seller Verification Checklist (printable PDF)
Spot a bad business deal before it costs you. This free, one-page checklist puts the 8 red flags, the two-question test, 10 ownership verification checks with space for dates and notes, and a lost deal log for your own “got away” map on a single printable page. Download the free seller verification checklist (PDF).
When to get out: the two-question test
Lou's answer to my two questions makes a simple test for any deal that starts to feel wrong:
| Likely to pay | Unlikely to pay | |
|---|---|---|
| Likely to close | Keep going, and keep verifying | Fix the engagement terms first, or walk away |
| Unlikely to close | Set a deadline and limit your time | Cut your losses now |
Add a third question that overrides the other two: does this deal require me to compromise my ethics or my safety? If the answer is yes, the odds don't matter. Walk away.
Build your own “got away” map
Lou's second map is more than a reminder. It's data. Every dead deal has a cause, and over time the causes form patterns: a type of business, a region, a kind of seller, a stage where deals tend to fall apart.
Industry data shows how common those patterns are. In Axial's Dead Deal Report on 75 lower middle market deals that fell apart after a signed LOI in 2025, the leading causes were diligence findings (25.3%), quality of earnings gaps (21.3%) and failed renegotiations (14.7%).
You can build the same kind of map for your own practice:
- Record a reason for every lost deal, such as price, financing, diligence findings, seller misrepresentation or a buyer who disappeared.
- Note where it died: before the engagement, after the NDA, after the LOI or in due diligence.
- Review the patterns quarterly. Which kinds of deals, sellers or regions keep showing up?
- Use it before your next listing. Ask Lou's question: which dead deal does this remind me of?
In Vertica CRM, every deal, note, document and conversation is on the record, and fields and pipeline stages can be configured to capture why a deal was lost. Reports and pipeline tools then turn those records into your own “got away” map, without a single sticker. (Why seller deals stall: the deal killers every broker should avoid.)
Bad deals, tire kickers and walking away
This article is part of a series on protecting your time and your reputation. Bad deals are about dishonest or dangerous situations. Two related articles cover the other sides of walking away:
- Buyers who never intend to buy: how to spot tire kickers and qualify buyers.
- When honesty means telling your client to walk away: client and broker interests: who takes priority?
What's changed since 2019
The lesson hasn't changed. The tools for documenting deals, and spotting trouble early, have:
- Every document in one place. Sellers can upload documents directly into the listing's data room, so ownership papers, leases and tax returns are collected and reviewed early. (Direct seller uploads.)
- Every conversation on the record. With a contact-specific inbox, every email with a seller or buyer is saved to their record, which matters when a deal turns bad.
- Release tracking. Vertica CRM records which buyer received which information and when. (How Business Brokers CRM thinks out of the box.)
- AI research is coming. AI Contact Research will build a profile of a buyer or seller in seconds, helping brokers check who they're dealing with before the first meeting. (More in our guide to AI for business brokers.)
Know your deals before they go bad
See how Vertica CRM documents every deal, every conversation and every reason a deal was lost. Contact us for a short demonstration.
Schedule a Demo Questions? Call +1 212 381 4994 (USA) or +61 3 8518 4759 (Australia).Frequently asked questions
What are the signs of a bad business deal?
Common signs include a seller who can't prove ownership, names on the lease, licenses or tax returns that don't match, a middleman who won't let you meet the owner, pressure to skip due diligence, records that don't add up, cash-only demands, unusual secrecy and any threats or intimidation.
How do you verify who owns a business?
Search the Secretary of State's business entity records, review formation documents, confirm the tenant and terms with the landlord, check that licenses and permits are in the seller's name, match tax returns to bank statements, run a UCC lien search and request tax clearance certificates. Meet the owner at the business, and involve an attorney.
What is a UCC lien search?
A UCC lien search checks Uniform Commercial Code filings, usually with the Secretary of State, to find debts secured against a business's assets. Buyers run lien searches during due diligence to confirm the seller has clear title and to avoid inheriting debts.
What is successor liability when buying a business?
Successor liability means a buyer can become responsible for the previous owner's unpaid taxes, penalties and interest. Buyers can protect themselves by requesting tax clearance certificates from local, state and federal tax agencies before closing.
When should a business broker walk away from a deal?
Walk away when a deal is unlikely to close and unlikely to pay, when the seller can't prove ownership or won't cooperate with verification, or when the deal requires compromising your ethics or safety. If there's any threat or intimidation, walk away immediately.
Why should brokers track lost deals?
Recording why each deal was lost reveals patterns, such as types of businesses, sellers or stages where deals tend to fail, so brokers can recognize the next bad deal early. A CRM can capture loss reasons and report on them over time.
Why do business deals fall apart?
In Axial's 2025 Dead Deal Report on 75 deals that failed after a signed LOI, the leading causes were diligence findings (25.3%), quality of earnings gaps (21.3%) and failed renegotiations (14.7%), followed by seller decisions, financing constraints and business underperformance.
What documents prove ownership of a business?
Ownership is usually shown by the company's record with the Secretary of State, formation documents such as articles of organization or incorporation, an operating agreement or shareholder agreement, share certificates or a membership ledger, and supporting records such as the lease, licenses and tax returns filed under the same entity.
Who should sign a business broker's engagement agreement?
The owner of record, meaning the person or company that legally owns the business, or someone with documented authority to act for it. If the person you're dealing with can't sign as the owner, you may not be dealing with the real seller.
What should you do if you're threatened during a business deal?
Stop working on the deal, document what happened, and contact the appropriate authorities and an attorney. No commission is worth your safety.
What is the difference between a difficult deal and a bad deal?
A difficult deal has problems that can be solved with work, such as a demanding seller or a complex valuation. A bad deal has problems that can't be fixed, such as a seller who isn't the real owner, records that don't add up, or people who are dishonest or threatening.
Is there a checklist for verifying a business seller?
Yes. Vertica CRM offers a free one-page Seller Verification Checklist (PDF) with 8 red flags, the two-question test, 10 ownership verification checks and a lost deal log.
Is it worth taking a difficult listing?
Not always. As Vertica CRM founder Joshua Factor puts it, sometimes the best listing you take is the listing you don't take. If a listing is unlikely to close or pay, or requires compromising your ethics, your time is better spent elsewhere.