When I evaluate a company for acquisition, I don’t just study the financials. Numbers are important, but operations tell me the real story of how a business functions day to day. It’s in the systems, processes, workflows, and people where I discover whether a business is truly stable, whether it’s scalable, and whether it can survive once the current owner steps away.
Over the years, I’ve developed a checklist of operational elements that I examine carefully before moving forward with a deal. These aren’t just boxes to tick. They are indicators of long-term health and signals of hidden risk. In this article, I’ll share how I review operations and why it often matters more than the headline revenue or profit a seller presents.
The Importance of Systems Over Personal Heroics
The first thing I look for is whether the business runs on systems or on the heroics of the owner. Many small businesses appear successful but are really just being held together by the daily involvement of the founder. If the owner has to solve every problem, approve every purchase, and sign off on every customer interaction, the business has no independence.
When I see this dynamic, I immediately know two things: one, the company is riskier than the seller admits; and two, if I do buy, I will need to invest heavily in building systems. The most valuable companies operate predictably without depending on one person. I look for documented processes, clear responsibilities, and workflows that function even when leadership isn’t present.
Technology as an Indicator of Maturity
I’ve learned that a business’s technology stack is one of the quickest ways to measure operational maturity. If I walk into a company and see outdated systems, manual spreadsheets, or paper-based record keeping, I know efficiency is being lost every day.
The best businesses leverage modern software for accounting, customer relationship management, inventory, and scheduling. This doesn’t mean I expect enterprise-level tools in every small business, but I do expect to see technology that reduces human error and creates scalability. Outdated or nonexistent technology is a warning sign of hidden costs and missed opportunities.
Employee Roles and Organizational Clarity
Another area I examine closely is the organizational structure. I want to know whether employee roles are clearly defined or whether everyone does a little bit of everything with no accountability.
Strong operations require clarity. Employees should know their responsibilities, who they report to, and how success is measured. Without structure, businesses fall into chaos when leadership changes. During diligence, I spend time asking employees about their day-to-day roles. If I get vague or conflicting answers, I know structure is lacking.
Vendor and Supplier Dependencies
I’ve learned that operational risk often comes from external relationships, especially vendors and suppliers. A company that relies heavily on a single vendor for key materials or products is vulnerable. If that vendor raises prices, experiences shortages, or ends the relationship, the entire business can collapse.
I always review vendor contracts, pricing agreements, and the length of relationships. A strong company has diversified suppliers and negotiated terms that provide stability. Weak companies depend on handshake deals or short-term arrangements that can change overnight.
Customer Service as a Window Into Operations
One of the fastest ways I evaluate operations is by looking at customer service. Are calls answered promptly? Are complaints tracked and resolved? Is there a system for follow-up?
Customer service reflects internal discipline. A business that treats customers well usually has internal systems that are working. A business with frustrated customers usually has deeper operational issues. I often mystery-shop companies I’m evaluating. What I hear on that first call tells me volumes about how operations truly function.
Inventory Management
For companies with physical products, I spend significant time reviewing inventory systems. Poor inventory management can destroy profitability even when sales are strong. Excess stock ties up capital, while shortages frustrate customers.
I want to see how the company tracks stock levels, how often audits are performed, and whether systems integrate with purchasing and sales. If inventory is managed by instinct rather than by process, I know efficiency is being lost and risks are being ignored.
Compliance and Safety Standards
Another operational area I never overlook is compliance. Whether it’s OSHA regulations, licensing, environmental standards, or industry-specific requirements, compliance failures create enormous risk. I check whether policies are documented, whether inspections are up to date, and whether employees are trained on safety standards.
Compliance may not show up in a P&L, but fines, lawsuits, or accidents can destroy a business overnight. I’ve walked away from deals where compliance was treated casually, because that attitude almost always leads to future problems.
The Quality of Communication
One subtle but powerful thing I observe is how communication flows inside the company. Do employees understand the big picture? Do departments work together, or do they operate in silos?
I’ve found that communication breakdowns are often the source of operational inefficiency. Strong companies have regular meetings, clear reporting, and consistent updates. Weak companies rely on informal chats, rumors, or last-minute instructions from leadership.
By talking to staff at multiple levels, I can quickly tell whether communication is a strength or a weakness.
Scalability and Capacity for Growth
When I buy a business, I want more than stability. I want growth potential. That’s why I study whether the company’s current operations can handle more volume.
I ask questions like:
- If revenue doubled, could the systems handle it?
- If customer demand surged, could production keep up?
- Are there bottlenecks in processes that would choke growth?
A business that requires a complete operational overhaul to grow is more of a turnaround than an acquisition. I’m willing to take on those challenges when the opportunity is right, but I always go in with eyes open.
Owner Dependency and Transition Risk
One of the biggest red flags I’ve seen is owner dependency. If the owner is the only one who understands critical functions, the business is at risk the moment they leave.
I evaluate how many decisions flow through the owner, how much knowledge lives in their head, and whether they’ve empowered staff. A truly valuable company has delegated authority and documented knowledge. If the owner is indispensable, then part of my negotiation will include a longer transition period to reduce that dependency.
Measuring Culture Through Operations
Operations are never just mechanical. They reflect culture. When I see messy processes, constant firefighting, or unclear responsibilities, I know the culture is reactive. When I see clean systems, proactive planning, and accountability, I know the culture is disciplined.
Culture shows up in how operations are managed. That’s why I always pay attention not just to what systems exist, but to how people use them.
Why Operations Trump Financials
Over the years, I’ve turned down businesses that looked great on paper but were disasters operationally. I’ve also bought businesses with average numbers but excellent operations, knowing that solid systems would allow me to scale.
Financials can be fixed. Marketing can be improved. But broken operations are expensive to rebuild. That’s why, when I review a company, I prioritize operational strength above almost everything else.
My Process for Reviewing Operations
Here’s the framework I follow every time I analyze a business:
- Evaluate systems and processes for consistency.
- Assess technology infrastructure for efficiency and scalability.
- Map organizational roles and identify owner dependency.
- Review vendor and supplier contracts for stability.
- Test customer service responsiveness and quality.
- Analyze inventory management practices.
- Verify compliance and safety protocols.
- Observe communication and cultural alignment.
- Stress-test operations for growth capacity.
- Identify transition risks if the owner steps away.
This framework doesn’t eliminate risk, but it makes risk visible. That visibility is the difference between making informed decisions and walking blindly into trouble.
Final Thoughts
When I buy a company, I’m not just buying numbers on a spreadsheet. I’m buying people, processes, systems, and culture. Reviewing operations gives me the clearest picture of whether that company will thrive under new ownership or collapse under pressure.
My greatest successes in acquisitions have come from prioritizing operational excellence. My greatest near-misses came from catching operational flaws just in time.
For anyone serious about buying businesses, my advice is simple: study operations with the same intensity as you study financials. Because in the long run, it’s the quality of the operations that determines whether a business becomes an asset or a liability.
I share more of my frameworks for evaluating businesses, along with my real estate and private equity strategies, on DrConnorRobertson.com, where I continue documenting what I learn as I grow through acquisitions.