Buying a business?
Identifying the right questions to ask when buying a business is a key part of the due diligence process. Making the necessary inquiries increases the chances that you will pay a fair price and obtain the business of your dreams. You’ll need to question yourself and the seller to determine whether the business is one that can be operated profitably.
Failing to ask the right questions when buying a business can lead to the nightmare scenario of overpayment and inheriting problems that you didn’t anticipate. You should leave no stone unturned when asking questions about the health and viability of a business you’re considering buying.
Whether you’re contemplating buying a small, medium, or large business, you still need to have a list of questions to ask. Buying small businesses could be a smart choice for would-be entrepreneurs because of the number of available small business. According to the Small Business Administration, since 1982, the number of small businesses in the US has grown by 49%.
Buying an established business is appealing because it may be easier than starting from square one. However, the benefits of buying an existing business can only be realized by taking the necessary steps and making the right inquiries. If you are considering buying an existing business, think about using the services of business advisers like brokers, lawyers, and accountants.
43 questions to ask when buying a business
Even before seeking out business advisers, position yourself to gain the most out of the buying process.The following list of 43 questions to ask when buying a business will assist you in making the right decision. We’ve broken down the following list into different categories below.
Jump to category:
- Initial questions to ask yourself
- Initial questions to ask the seller
- Financial performance questions
- Value of the business questions
- How the business is valued questions
- Everyday management questions
Initial questions to ask yourself when buying a business
Buying a business is a big commitment and requires deep questions to determine whether you’re genuinely interested in that particular business. Your interest in a particular business needs to be combined with the potential for a healthy profit.
Ask yourself the following questions to find out whether you actually are sold on the business or whether you just like the idea of it:
1. Does the business have longevity? Buying a business based on a current trend could be exciting, but you must ask yourself whether there will be demand for the products and services in years to come.
2. Will I be happy doing this all day? Your idea may be to buy a business and hire a manager for the day-to-day operations. However, you’ll still need to be heavily involved in the business, especially in the early days.
3. What exactly am I buying? There are several structural options available when buying a business including a corporation, entity or just assets.
The initial questions to ask when buying a business involve answering on a gut level. You should be brutally honest with yourself to avoid making a mistake. Here are some more questions to ask yourself when contemplating buying a business:
4. What is my motivation for buying this business?
5. Would it be easier to start a similar business on my own?
- Do I have enough experience in this field to make this business work?
7. What do I know about the competitors?
8. Am I planning to buy this business on my own or will I need a partner?
9. Can I really afford to buy this business considering my other financial commitments?
10. Can I make a comfortable living from this business?
Initial questions to ask the seller when buying a business
Just as there are some initial and basic questions you should ask yourself, there are also some elementary questions you must ask the seller when buying a business, including:
11. Why has the seller put the business up for sale?
12. What exactly does the business do?
13. What year did the business start to operate?
14. What is the history of the business?
15. How long has the current owner been operating the business?
The answers to these questions will give you an indication of whether you want to proceed, but you should be aware that the owner may not be entirely open about some answers. For instance, it’s unlikely that the owner will be forthcoming about poor business performance. You’ll need to be on alert for red flags (which could include evasive answers) to determine whether the business opportunity is worth pursuing.
Questions to ask about the company’s financial performance
It’s time to make further thorough investigations into the company’s financial performance, once you’re satisfied with:
- Your answers
- How the business owner addressed your questions
The relevant documentation should provide answers about the financial state of the business. However, you should first ask the business owner questions about the company’s financial performance. Important questions to ask about the financial state of the business include:
16. Can the owner provide evidence of the gross revenue of the business for the past three years?
17. What were the yearly net profits of the business for the past three years?
Proving the company’s financial performance shouldn’t be skimped on and you should be at liberty to ask all the necessary questions and examine as many documents as possible to help in your decision-making process. Relevant documents that may help to paint a picture of business performance include:
- Profit and loss statements
- Bank statements
- Supplier contracts
- Lease agreements
Financial statements should be readily available and presented to you in an organized way. Missing documentation or slapdash record-keeping could be a warning sign indicating that the business may be experiencing financial issues.
Questions to ask about the value of the business
The amount you pay for a business and its assets will impact on your potential success. If you pay more than you can afford and the business fails to make the necessary profits, you could lose it all. The aim is to pay a fair price that you can afford and won’t result in you being financially strained. Ask the following questions to determine the price of