Questions to Ask When Buying a Business

Becoming a business owner is a major step. If you get into the right business, it could be one of the greatest decisions you ever make. However, the wrong business can produce the opposite effect – leading to misery and most likely an early exit. Before jumping in, it is important to perform your due diligence. Sell Your Business

Toward that end, here are seven questions you should ask when you are considering acquiring a new business:

Why are you selling the business: This is the most basic question to ask, and it should provide some good insight into the seller’s motivation for exiting the business. There are many legitimate reasons for selling such as retirement, necessity to relocate, health concerns, career changes, etc. Listen carefully to the way this question is answered. The main concern here is that the seller is not getting out because the business is in decline or facing other difficult challenges.

How did you determine your asking price: At times, sellers tend to have an inflated view of the value of their company. Since they have invested a lot of time, talent and treasure to build the business, it is only natural for them to believe it is highly valuable. However, the asking price should be based on real numbers such as the value of the assets of the business, annual revenue, profits, customer base, and other relevant factors. The price should not be based on arbitrary factors such as “I need X amount of dollars to finance my retirement.”

Do you have any pending litigation or other unresolved issues: The last thing you want to get into is a company that has legal troubles. Ask if they have had any lawsuits against them in the past or present, or if there is any potential trouble on the horizon. You should receive your answer to this question in writing, in case the owner is trying to conceal something that is discovered later on.

What skills and qualifications do I need to effectively operate this business: This is a very important question; because the answer to it will largely determine your likelihood of being successful in the industry you are looking to become a part of. Ask the owner to be as specific as possible when answering this question, so you have a good understanding of what it will take to make this business work for you.

What are your biggest market challenges, and your best areas of growth potential: Every business has challenges within the marketplace. But there are also areas that can be capitalized on to grow the company. You need to know both sides, so you have a realistic view of your new business and industry.

Are you willing to continue working with me in some capacity to ensure a smooth transition: When you take over a new business, there will undoubtedly be a learning curve during the transition. Convincing the owner to stay on for some period of time will help tremendously in getting started on the right foot. Even if it is in a consultant/advisory role, this is still much better than having no help at all.

Are you willing to finance any part of this transaction: Financing is always a major concern when buying a new business. It can be difficult for new owners to obtain traditional financing unless you have a significant amount of money available as a down payment. If the owner is willing to self-finance at least part of the deal, this can help clear the way for financing approval.

Finding the right business to purchase and knowing the right questions to ask can be challenging. Working with a business broker can help increase the chances of success. A business intermediary can work with you to match you with the business opportunities that best fit your passion, skills, and budget.

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