Buying an already running business might seem like a fast track to entrepreneurial success. But let’s be honest, not everything that glitters is gold. What looks like a great opportunity at first glance can hide some pretty unpleasant surprises. That’s why today we want to talk to you about something crucial if you’re considering acquiring a company: the famous (and feared) red flags.

Yes, those warning signs that, if you don’t catch them in time, could turn your investment into a real nightmare. In this guide, we’ll walk you through what to watch out for, how to spot it, and, most importantly, how to protect yourself before signing anything. Let’s break it all down.

What Does Buying an Existing Business Actually Mean?

When you buy a company that’s already operating, you’re not just purchasing walls, desks, or computers. You’re buying a story, a system already in motion, established relationships… and potentially, inherited problems.

Pros and Cons of Buying an Operating Business

The advantages are obvious:

• Immediate revenue.

• An existing customer base.

• A known brand.

• Established processes.

But it’s not all sunshine and rainbows. You might also be buying past mistakes, hidden debts, or a burned-out team. The key? Look beyond the polished Excel sheets.

Key Elements You Inherit with the Business: Clients, Brand, Contracts & More

So what are you actually buying?

• Clients – Are they loyal or long gone?

• Brand – Is it truly valuable, or just sounds nice online?

• Contracts – Are there long-term obligations that tie your hands?

• Employees – Are they motivated or just waiting to jump ship?

• Software, licenses, IPs… All of that matters too.

It’s not just what you see. It’s what you’ll have to manage and deal with afterward.

Common Red Flags When Evaluating a Business for Sale

Here’s where things get serious. Because there are signs you just can’t ignore.

Non-Existent or Inflated Clients: How to Uncover the Truth

You might be shown a long list of “active clients” that looks impressive. But once you review the invoices, you’ll notice half haven’t bought anything in months. Or worse, they never existed.
Want to verify? Request access to the CRM, check real sales data, and if possible, contact a few clients. Trust, but verify.

Phantom Employees and Inflated Payrolls

Another classic: employees getting paid but not working, or salaries way above industry standards. If payroll is eating up too much without clear output, something’s off. Maybe it’s family members on the books or simply poor practices.

Hidden Debts or Pending Legal Issues with Suppliers or Tax Authorities

This can completely sink you. Some companies do their best to cover up unpaid taxes or legal disputes. But if there are lawsuits, fines, or issues with the Spanish tax agency (Hacienda), you have the right to know. Request everything. If they’re unwilling to share, you’ve just spotted a red flag.

Unfavorable or Restrictive Third-Party Contracts

Are there supplier or franchise contracts that will bind you for years? Any early termination penalties? Review every agreement carefully. Some seem fine, until you’re locked in.

Heavy Reliance on One Revenue Stream

A common trap. Everything looks good, but 80% of revenue comes from a single client. What happens if they leave? You’re in deep trouble. Diversification = peace of mind.

Subtle Signs That Often Go Unnoticed

Not all red flags are loud and obvious. Some are subtle but equally dangerous.

Recent Revenue Spikes Without Clear Explanation

A sudden increase in sales right before the business goes on the market? Suspicious. It might be an attempt to inflate the company’s value. Ask for context and proof behind every sudden change.

Lack of Organized and Verifiable Financial Records

If all you get are random printouts or PDFs that can be easily edited… red flag. A serious business has well-maintained, transparent accounting. Anything else should raise concern.

Tense Relationships with Key Employees or Suppliers

Just one casual conversation with staff or suppliers can reveal a lot. If there’s tension, distrust, or fear of change, it’s your problem now. You’ll inherit that tension.

Lack of Investment in Maintenance or Technology

Outdated tech, old equipment, manual processes... is that really what you want to buy? Many owners stop investing when they plan to sell. Don’t buy a ticking time bomb dressed up in makeup.

Goodwill: What It Is and How to Value It

Now we’re diving into more abstract (but essential) territory.

What’s Included in Goodwill: Reputation, Clientele, Brand...

Goodwill is the intangible value of a business:

• Market reputation.

• Customer relationships.

• Brand recognition.

• Competitive positioning.

All of that has value. But it’s not easy to quantify.

How Goodwill Is Usually Valued in Business Sales

Some common methods include:

• Comparables (similar businesses).

• EBITDA multiples.

• Forecasted future revenue.

But let’s be real, it’s always somewhat subjective. If someone asks a lot for their goodwill, make sure they can back it up.

How to Avoid Overpaying for a Poorly Justified Intangible

If they’re selling you on “brand value,” great. But… is there real data to support it? Loyal customers? A strong online reputation? If not, it’s just hot air. And hot air shouldn’t be expensive.

Real-Life Examples: When a Business Is Worth More (or Less) Than Its Assets

Let’s bring this down to earth with a few stories.

Case 1: A Well-Known Brand with No Clear Profits

A highly visible company on social media, tons of followers… but inconsistent income. Strong branding, weak revenue. In this case, goodwill doesn’t justify the price.

Case 2: A Great Location with Loyal Foot Traffic but Few Tangible Assets

A small neighborhood café. No fancy machines, but regulars every day. The real value is in the community, not in physical assets.

Case 3: Company with Valuable Machinery but No Team or Processes

A factory with excellent machines, but chaotic management. Without people or systems, those machines lose a lot of their value.

Conclusion: How to Protect Yourself Before Signing the Deal

Now let’s talk about how to not get burned.

Due Diligence: Your Best Tool to Uncover Irregularities

Carry out a full due diligence process before signing anything. Legal, financial, tax-related, operational… whatever it takes. Don’t hesitate to ask questions or dig deeper.

Rely on Specialized Advisors and Demand Document Transparency

A good lawyer or advisor is worth every euro. They’ll spot what you might miss. And if the seller refuses to provide documents or delays unnecessarily, you’ve just found another red flag.

Don’t Be Blinded by Pretty Numbers: Analyze the Full Picture

A flashy presentation doesn’t pay your bills. Look beyond the surface: the team, workflows, relationships, business culture… everything matters.

If you’re thinking about buying a business in Spain and want to avoid unpleasant surprises, Business in Spain can help you find secure, transparent opportunities. Real experience, clear criteria, and a 100% commitment to protecting your investment.