Blog · Guide · 4 min read

Red flags when buying a small business: 8 public-record checks before you instruct a solicitor

A solicitor's due diligence is essential, but it isn't cheap, and it usually starts after you've agreed a price. By then you're invested. Many of the problems that sink a deal are on public record from day one. Here are eight areas to look at, what a red flag looks like, and why it matters.

One caution first. A red flag is a reason to ask a question, not proof that anyone has done wrong. And "I couldn't find anything" isn't the same as "there's nothing there".

1. Company filings and charges

The company's record on Companies House says a lot about how it's been run.

Red flags: late or missing accounts, a strike-off warning, debts growing year on year, lenders with security over the assets, or directors resigning just before the sale.

Why it matters: in an asset sale, any lender's security needs releasing before you buy. In a share sale, you inherit everything.

2. Insolvency notices

The Gazette publishes winding-up petitions and liquidations.

Red flags: a pending winding-up petition, or a recent liquidation linked to the business or its premises.

Why it matters: a sale by a company facing a petition can be challenged. That's firmly one for your solicitor.

Where buyers get caught out: insolvency history is often attached to a different company from the one selling, so a quick search of the name on the advert finds nothing. This is the part that takes hours.

3. Phoenix companies

A "phoenix" is when a company fails and a new one, often with the same people, carries on the same business. It can be perfectly lawful, but there are restrictions on re-using an insolvent company's name, and it raises real questions for a buyer.

Questions to ask the agent: who legally owns the equipment, lease and licence today? Who is actually selling? If assets were bought from a liquidator, where's the paperwork?

Where buyers get caught out: a phoenix pattern almost never appears in the advert, and it's rarely obvious on any single record. It's where the most serious RED findings in our test checks came from.

4. Premises licence holder and DPS

For anything selling alcohol, the council's premises licence names a holder and usually a designated premises supervisor. GOV.UK explains how premises licences work.

Red flags: the licence held by a dissolved or liquidated company, no current DPS, or hours and activities that don't match the advert.

Why it matters: without a valid licence you can't trade as advertised, and fixing it can take time and legal help.

5. Food hygiene rating

Look the business up on the FSA ratings site.

Red flags: a rating of 0 to 2, a long gap since the last inspection, or no listing for a business that's been serving food for years.

Why it matters: a low rating means investment and hits trade, and a missing one raises questions about what's really been going on.

6. Business rates

The VOA business rates service shows the rateable value.

Red flags: an advert quoting a very low rates bill without saying it depends on relief that may not pass to you.

Why it matters: rates are a fixed cost, and a surprise here goes straight off your profit.

7. Lease length

"15-year lease" sounds secure. The question is how much of it is left.

Red flags: far fewer years remaining than the headline suggests, a lease without renewal rights, a rent review soon after completion, or a tenant on the lease that isn't the seller.

Why it matters: the lease underpins the value of the whole business, and a short one can make it hard to borrow or sell on.

Where buyers get caught out: the gap between what a lease sounds like in an advert and what it says on paper. It's a mismatch our test checks have already turned up.

8. Reviews and social media drop-off

Red flags: reviews tailing off, recent mentions of closures or new management, or social accounts that went quiet months ago.

Why it matters: the advert describes the business at its best. Recent customers describe it as it is now.

An illustrative example

This example is made up to illustrate the point; it doesn't describe a real business. A bar is advertised as "established 8 years, genuine retirement sale". The public record tells a different story: a young selling company, a liquidated predecessor run by the same people, and a licence still in the old company's name. The overall picture is red, not because anyone has necessarily done wrong, but because nobody can yet say who has the right to sell the lease and licence. That needs a written answer from the agent before any money is spent.

Putting it together

Each of these areas is a question that's far cheaper to answer before you instruct a solicitor than after. Write down what you're told and get the answers in writing.

Short of time? BizHistoryCheck looks into all eight areas (and more) against an advert and returns a red, amber and green business history report, with sources and the questions to ask. See a sample report or check an advert.

This article is general information only. It is not legal, financial or tax advice, and a flagged pattern is not proof of wrongdoing. Registers can lag behind reality. Always speak to your solicitor and accountant before making an offer or signing anything.