Buying a business can be both challenging and exciting. If you’ve found the perfect business to purchase, it’s essential to take a step back and evaluate the process and decision as a whole. Making sure you ask a seller the right questions can save you from headaches and unnecessary setbacks down the road.
Here are some starter points and tips on narrowing down the most important questions to ask when buying a business.
General questions are often overlooked, so be sure to consider asking these simple questions. Doing so may reveal things you weren’t expecting.
- Why are you selling your business?
- Can you tell me more about who founded the history and how the management evolved?
- How have you arrived at the asking price?
Aside from the basics, there are several financial questions to ask for transparency, such as:
- What does the company’s financial status look like?
- Ask for at least three years’ worth of tax returns.
- What’s the relationship between the company and its bank like?
- Does the company have any debt? Are there liens against it?
When these questions have been answered, have an account review the company’s key financial ratios. These include net income to net worth, net income to total assets, and gross profit to net sales.
Once you’re confident you know enough about the company’s financial background, move on to asking about its legal history:
- Is the company involved in any ongoing lawsuits?
- What type of contracts does the business have?
- Are there industry or zoning-related regulations that affect the business or affect it in the future?
The first questions you should ask before buying a business can be narrowed down to these three categories: general, financial, and legal. However, there are several other conversation points you should have with any seller. Some examples include:
- Target markets and primary competitors
- Sales channels and sales history
- Company assets and reputation
- Suppliers and inventory levels
- Employee wages and benefits
- So much more!
The best place to start is by researching the business you’re interested in and making a list of anything you want to discuss. Consider asking questions in the following categories: the basics, financial, legal, market, sales and marketing, assets, suppliers, and employees/company culture. Never refrain from asking a question, no matter how small or insignificant you may think it is.
If you have questions about buying an existing business, contact us today to speak with one of our experienced business brokers. We are happy to provide information from the very first step all the way to closing.