Good Financials Can Hide a Broken Business

When interest rates rise, the natural instinct is to zoom in on the numbers. Debt ratios, coverage metrics, and cash flow become the center of attention. That is what we are trained to analyze. And yes, those numbers matter, but they are not the full story.

Behind every healthy balance sheet is a company with people, systems, and workflows holding it together. Sometimes, what looks fine on paper is held together by temporary fixes and long hours.

With the cost of capital going up and deals facing more scrutiny, internal operations are being tested like never before. The businesses that are not built on solid operational foundations are starting to show the strain.

Numbers Look Right but the Business Struggles

When the Numbers Look Right but the Business Struggles

I have seen businesses with great revenue and clean margins fall apart when capital becomes expensive. The issue was not the market. It was that their operations were not built to adapt. Everything took too long. Reports were stored in too many places. Teams spent their time catching up instead of planning ahead.

On the other hand, I have seen companies with tighter margins make smart moves. They had systems that worked well together. They could pivot when needed. They kept customers happy even when budgets were tight.

The big difference was not just what they earned. It was how they earned it.

Operational Due Diligence Is Not Optional

Financial due diligence tells you what a company did. Operational due diligence tells you how they did it and whether they can do it again.

If you are evaluating a company, these are the questions that matter:

• Can this business scale without needing to double its headcount?

• Are the tools they use helping or slowing them down?

• Can the leadership team see the full picture in real time?

When interest rates are high, small problems get bigger. A slow process becomes a bottleneck. A spreadsheet-based report becomes a missed opportunity. This is what makes operational due diligence essential.

A Simple Way to Spot Weak Links

When we assess businesses, these four steps reveal whether they are ready to grow or if they are already stretched too thin.

Walk the Workflow

Sit down and map out what happens when an order comes in. Who handles it? How long does it take? What tools are used? Every step that is not automated or clearly owned by someone is a possible risk.

At one business we reviewed, invoices were delayed by almost a week because one person managed them manually. We implemented a tool that cut the time down to a single day and gave that team member five extra hours per week.

Review the Technology

Most companies use software. The question is whether those tools are connected. If the sales system does not speak to the billing tool or the customer service team cannot see order history, time and energy are wasted.

Technology should move information from one part of the business to another. If it does not, it creates friction.

Understand How Decisions Are Made

If a manager needs to wait three days to get a report or chase data from different people, the business is exposed. Fast, confident decisions only happen when there is good information.

Look for dashboards. Look for tools that summarize what matters. If leadership is flying blind, the business is at risk.

Test the Stress Points

What happens when volume doubles? What happens when a team member leaves? Ask those questions and listen closely. Resilient businesses have clear answers. Others have wishful thinking.

What This Means for Valuation

Confidence drives valuation. Confidence that the business will continue running well, that it will scale, and that it will not break when things change.

If the numbers look strong but the operations are full of cracks, the risk is higher than it seems. But when operations are efficient, technology is integrated, and the business can adapt, that confidence grows.

Buyers are looking for businesses that will hold their value after the deal closes. That value starts with how the business runs.

What You Can Do Next

Whether you are preparing to sell, advising someone who is, or looking to invest, start here:

1. Look beyond the financials. Dig into how the work gets done.

2. Simplify. The best tools are the ones your team actually uses.

3. Ask for outside perspective. A second look often brings clarity and solutions.

At BusiMined, this is what we focus on every day. We help companies build the kind of operations that make buyers say yes. Because in this environment, efficiency is not optional. It is the foundation of long term value.