Red flags in CIMs?

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September 26, 2025

by a professional from University of California, Berkeley - Haas School of Business in New York, NY, USA

What are the top 3 red flags you see repeatedly in CIMs that most first-time buyers underestimate?
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Reply by a searcher
from University of California, Los Angeles in Dallas, TX, USA
Generally speaking (in a way similar to what one could identify as red flags on a resume), (unexplained) gaps in story/timeline, absence of historical growth, no visibility of future financial/human capital needs for future, complexity of financials (especially if adjusted) or overall lack of financial info, discrepancies in information (operating or financial) from one page to the other... The biggest red flag is, after reading the CIM, do I feel excited, do I want to know more, or do I feel concerned...
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Reply by a searcher
from University of Toronto in Toronto, ON, Canada
One of the red flags I commonly see is in the SDE addbacks. Specifically: removing owner comp, but not putting in the market comp of a replacement; no deduction for regular capex requirements; and addbacks for regular business expenses that just didn't work out (e.g. adding back a salesperson salary because they didn't make enough sales). Personally, I'm not looking for that much else in the CIM, other than the overview of the business, list of inventory and customer mix.
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