This motor new to you? If so, would definitely want to replace the impeller as a first step. Otherwise, you might dip the l.u. deep in a barrel and try it carefully again -- if, for example, it ran well for you last season and/or you know the impeller was replaced fairly recently (say, two years ago, or so). You should see water out of the exhaust port on the leg immediately after start up. Run it only at idle or high idle.
The l.u. oil should be checked for water, but could do the above testing first without risk. If there is water, you can pressure test the unit yourself to locate the leak.