Here at Finn Business Sales, we aspire to make business sales and acquisition a smooth and positive process. We’re also realistic about the journey to finding the right business for you, and a key part of this is watching out for red flags in businesses you’re exploring before you make an offer. Today, we’re looking at glaring red flags in people management.

Looking objectively at how a business manages its employees can go a long way in giving you the wider picture of the business health as a whole. So let’s take a look at the top 5 red flags in people management that you’ll want to be on the lookout for:

1. A high attrition rate

If a business has a consistent turnover rate of staff, it’s always worth a closer look. Departures of team members beyond the norm can signal a lack of leadership or a poor business culture. They may also indicate minimal movement and growth within roles, or more insidious concerns like bullying or inappropriate behaviour.

If you can, you may like to seek insights from current employees to understand the culture. It can also be helpful to check out websites that share staff feedback from former or employees. Employees often seek diverse roles, so departures aren’t always bad—but ensure they’re leaving for the right reasons.

Remember, a high attrition rate can also be a sign that the business is trying to run on a skeleton staff to save on costs. 

2. Minimal employee development

For employees today, they’re looking for more than just a paycheck. They recognise they are giving over a significant portion of their life to their employer, so they want to feel equally invested in. Ask about how the business trains and mentors staff, as well as opportunities for promotion and growth. This will also provide insight into their commitment to employee development and the team’s motivation and connection to their work.

3. Friends and family

Beyond a formal family-owned structure, do the current owners depend on a mix of family and friends for daily operations? A lack of a structured team can suggest poor planning on the side of the owner. As well as potential absence of them despite the business’ needs. 

If the staffing roster seems more random than intentional, consider speaking with the business owner if possible. This can help you understand the existing organisational structure and how these friends and family employees view their roles.

Watch for businesses staffed by family members during weekends or quieter hours—like a retail store run by a niece on Sundays. This could signal a thoughtful succession plan or, conversely, a loss of energy and passion from the current owner.

4. Workplace conflicts & incidents

Does the business you’re considering faced issues like bullying, harassment claims, unfair dismissal, or missed payments in its history? A healthy business addresses conflicts promptly and maintains a clear process for HR management and reporting. A questionable history of staff incidents may indicate that the current owner or management isn’t fostering a safe or healthy environment for employees.

As a potential owner, consider whether you’re walking into any lawsuits. You may also need to compensate employees awaiting payment.

5. The mood check

If you can, spend some time at the business you’re looking to buy, and aim to interact with different arms of the business (e.g. the warehouse team and sales team). How do the staff appear? Calm and working steadily? Frazzled and understaffed? 

Alongside watching for formal red flags, trust your instincts if something feels off in how the business manages its people. Don’t hesitate to speak with your business broker, other advisors, or even the owner directly if you’re unsure. Cagey, defensive or closed-off communication from an owner looking to sell is never a good sign!

So, stay vigilant and honest with yourself when assessing a potential business to buy. Don’t shy away from asking tough or awkward questions about their people management—they could save you from heading down the wrong path.