The other day, I had a client approach me about buying an existing business. On the surface, everything looked promising—the business had shown increasing revenue and profits over the past three years, and the seller seemed eager to close the deal quickly. In fact, the seller’s sense of urgency was so strong that it raised my eyebrows. It felt like he was trying to get out the door before anyone asked too many questions. That, right there, was the first red flag.
My client, understandably, was excited. He feared that if he didn’t act quickly, someone else might swoop in and snatch the opportunity away. But I’ve been around long enough to know that if something seems too good to be true, it probably is. So I advised him to slow down and conduct proper due diligence before signing anything.
Thankfully, he listened.
As we dug deeper into the company’s operations, some troubling patterns began to emerge. First, we uncovered a very low reorder rate from existing customers. While the financials showed revenue growth, it turned out much of it came from new customers—not returning ones. This suggested that while the company could attract new business, it struggled to satisfy and retain those customers. That’s not a good sign. Repeat customers are the backbone of most sustainable businesses, and without them, growth is hard to maintain.
Then we looked into employee retention. High turnover was another warning sign. When employees don’t stick around, it often points to deeper issues—poor management, inadequate pay, or even a toxic work environment. In this case, interviews revealed the likely culprit: employees were underpaid and overworked. That’s not just a cultural problem; it’s an operational one that affects customer service, training costs, and long-term viability.
But the most alarming discovery came when we analyzed the company’s customer acquisition costs. They were climbing fast—much faster than revenue. At the same time, gross margins were shrinking. That meant it was costing the company more and more to land each customer, and they were making less and less from each sale. The combination of these two trends is a recipe for financial instability, even if the top-line numbers look solid.
This is why I always tell clients: it’s not just about the financial statements. Buying a business requires a 360-degree view. Financials can be massaged. Trends can be misleading. But operational realities like customer satisfaction, employee retention, and acquisition efficiency paint a much clearer picture of a business’s health.
Too many buyers fall in love with a business before they understand it. They rush in, thinking they’re about to score a once-in-a-lifetime deal, only to realize later that they bought a lemon. Sellers eager to offload their company quickly—especially without a clear reason—should make you pause. Sometimes urgency is legitimate, but other times it’s about escaping before the wheels fall off.
The truth is, the smartest deals are made not in haste, but through careful, methodical investigation. And in this case, due diligence paid off. My client avoided what could have been a major financial setback, and is now using that experience to guide a more thoughtful acquisition search.
When was the last time you did a full due diligence check before making a big business decision? Whether you’re looking at buying a business, entering a new partnership, or even launching a new product, taking the time to dig deep can make all the difference.
