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Red flag library

The warning signs that come up again and again when buying a small business: why each one matters, how to spot it, what to ask the seller and which documents to request.

6 red flags for Legal and compliance.

Legal and compliance

6 red flags

  • Pending or threatened litigation

    A live or threatened claim can cost a business far more than any damages, and some claims follow the business to a new owner. Find every dispute, understand who carries it after the sale and price or protect against it.

    Severity: price it inAll business models

  • Licences or permits that do not transfer

    If the licence, permit or registration a business needs cannot pass to you, or cannot be obtained in time, you may be buying a business that is not allowed to trade. Confirm the route before you commit.

    Severity: deal breakerAll business models

  • A lease ending soon or needing landlord consent

    For a business tied to its premises, a short lease or a landlord who must consent to the sale can put much of the value at risk. Read the lease early and make the landlord's agreement part of the deal.

    Severity: fixableRetail, Hospitality, Healthcare, Manufacturing, Distribution, Logistics, Construction, Agency or services, Ecommerce, Other

  • Intellectual property held by the owner or freelancers

    The brand, code, content or designs a business depends on may legally belong to the owner or to whoever created them. Check ownership and get written assignments in place before completion.

    Severity: fixableAll business models

  • Customer data collected without valid consent

    An email list or customer database is only worth what you can lawfully use after the sale. If consent was never valid, part of the list, and the revenue it drives, may have to go.

    Severity: price it inSaaS, Ecommerce, Content, App, Marketplace, Agency or services, Healthcare, Retail, Hospitality, Other

  • Unpaid taxes a buyer could inherit

    Tax the business should have paid does not disappear when it changes hands. In a share sale it stays with the company you buy, and some unpaid taxes can follow even an asset purchase.

    Severity: price it inAll business models