What is a red flag DD report?

A red flag DD report is a focused due diligence report that identifies significant risks or unresolved issues in a proposed business transaction. “DD” means due diligence. Buyers and investors often use this report during an early-stage deal assessment to decide what needs closer investigation before proceeding.

Rather than documenting every detail about a company, it highlights matters that could affect the decision to proceed, the purchase price or deal terms, or the protections required in the agreement. Findings may cover material legal or financial risks, such as pending litigation, tax disputes, undisclosed debt, gaps in ownership records, or problems with key contracts.

A red flag is a reason to investigate, not automatically a reason to abandon the deal. The report typically describes the issue, its potential significance, and any follow-up questions or actions. It is narrower than full due diligence, which examines a wider range of the company’s records and operations in depth.