Red flag library
6 red flags for Operations and people.
Operations and people
6 red flags
The owner does the selling or holds key relationships
When the owner wins the work and keeps the important relationships, part of the revenue may leave with them. Test how much of that revenue would stay without them before you agree a price.
Severity: price it inAll business modelsUndocumented processes
When the way a business runs lives in one or two people's heads, the handover gets harder and early mistakes get more likely. It is usually fixable if you find it before you sign.
Severity: fixableAll business modelsKey staff not tied in
If the people who hold the business together have no written terms, no notice periods and no reason to stay, a sale is the moment they are most likely to leave. Find out who matters and what keeps them.
Severity: fixableAll business modelsContractors who are employees in practice
Treating people who work like employees as self-employed can flatter profit and build up back taxes and employment claims. Size the exposure and the true cost of labour before you agree a price.
Severity: price it inAll business modelsSupplier or single-source manufacturing concentration
When one manufacturer, wholesaler or platform supplies most of what a business sells or relies on, that supplier controls your margin and your ability to trade. Price in the cost and time of switching.
Severity: price it inAll business modelsFamily or related staff paid off-market rates
Relatives who work for little or nothing make profit look higher than it will be under a new owner, and pay for relatives who do little work is often presented as an add-back. Restate their pay at market rates before you apply a multiple.
Severity: price it inAll business models