So, you’ve found the business you’ve dreamed of – which means it’s time to pause, take stock, and make sure you ask the seller some important questions before you make the final plunge.
Knowing which questions to ask when buying a business will help you pay the business’s right price and help you prepare to run the business after you close on the transaction. Many experts are predicting that a huge wave of businesses will become available over the next decade. As the economy continues its climb, it just might be the perfect time for you to fulfill that lifelong dream of buying a business. Before you buy a business, you should take the time to ask yourself and the seller a series of questions that will help make sure you’re prepared for the rigors of business ownership.
Of course, you will instruct a team of professionals (business brokers, attorneys, and accountants) to perform due diligence and check out the facts and figures. But there are additional questions you need to ask yourself and the seller to find out if the business you’ve targeted is everything it’s cracked up to be – and to help work out if it really is the one for you.
Here is a list of questions (in no particular order) that you should get answers to before buying the business of your dreams.
Questions to Ask the Seller
Why are you selling the Business?
Some owners may liquidate a business because there is no one in the family or organization interested in succeeding them or maybe failing health – both of which may be true; however, if the seller is getting out because there’s some new competition in the market or because there’s been a downturn in trade, depleted sales, or insurmountable debt. You’ll need to find out as much as you can before going in or taking a pass on the purchase.
Also, how do you know they’re telling the truth? You don’t, but most people don’t make a decision like this overnight; you will need to do thorough research on this. If the business has a solid history and a profitable future, the owner should provide you with a timeline for their preparation for sale.
How would you grow the company?
You can ask the seller if he has any specific strategies for growing the business. If they do share their ideas with you, ask why they haven’t executed the plans themselves. By inquiry on these points, you can gain important insights into the business’s potential. If the seller has tried lots of different strategies without success, you may want to reconsider buying the company/business.
Will you sign a non-compete agreement?
Everyone’s reasons vary when selling a business.
Some owners may want to move on, but others might have ulterior motives that could negatively affect your new venture. No buyer wants to acquire a business only to find the former owner is preparing to launch a similar business, poaching all their previous customers. . In this case, you may as well have started your business from scratch. Many exiting entrepreneurs may look to work or consult for another firm in the same industry, and that move could put a dent in projected revenues.
If the seller has no ulterior motive competing with you, signing a non-compete agreement shouldn’t be a problem for the seller.
Who are your key customers, suppliers, and staff?
It’s important to know how dependent the business is on certain customers, supplier relationships, or staff expertise. Unless customers and suppliers are tied into a contract, you can’t count on their continued patronage. And if the business’s expertise rests with one or two key employees (in most cases, the current owner), you could be in difficult circumstances.
Questions to ask about the suppliers are
- Who are the company’s suppliers? Are the suppliers willing to transfer the existing contracts to you when you take over the business?
- Does the business have multiple suppliers or just a few?
- What inventory levels does the company maintain? Too much can sign that the company is struggling to move products or is spending too much-maintaining inventory.
Questions to ask about the employees are
- How do employee wages compare to the industry average and average wages in the local marketplace?
- What are employee benefits offered? How much do they cost?
- Does the business have many long-term employees, or is there high turnover?
- Who are the key employees? What are their duties and positions?
- What is the company culture like? Is it a good fit for you?
- Are the employees unionized, or are they planning to unionize?
- Are key employees likely to stay on after a change of ownership?
What are the biggest challenges in the business right now?
Most business owners will be prepared to talk about the challenges they face in the current market – and if they’re not, think twice before proceeding. No business is immune from competition or the impact of economic conditions, so don’t be afraid to ask questions about the strategies your seller uses to stay ahead.
Questions to Ask Yourself
- Is buying a business the best decision for you right now? Perhaps the most important questions to start asking to involve whether buying a business is a good fit for you. If you’re just bored or looking to try something, what happens when you have to do the tedious tasks that every entrepreneur must do? If that’s the case, you might want to consider a hobby instead.
If, on the other hand, you see real opportunity and have always tended to see the world a little differently than others in your corporate job, owning a business may be right for you. “At the same, you should ask yourself if right now is the best time to commit to buying.
- Do you have the financial means to live without a paycheck until revenue starts flowing? You’ll need to rely on savings for living expenses until you acquire some customers and generate adequate sales. Some lifestyle sacrifices may be necessary until you reach your goals.
- Can you excel at sales, production, service, and all the necessary skills it takes to run a thriving business? Business owners wear a lot of hats. You’ll need to multi-task and perform many duties or delegate those crucial tasks to a partner or key employee.
Some companies are built from the ground up, and others are acquired. In either case, you’ll need to perform extensive due diligence.
- . What is your exit strategy? This is an important question to ask even as you decide whether to buy a business or not. This should be considered right from the start. What if you have to sell the business or get out sooner than you thought? I would advise that you also have a buy-sell agreement if you happen to have any partners involved in the business.
Buying an existing business is a huge decision and one that can’t be taken lightly. Therefore knowing the right questions to ask when buying a business is the key to a successful purchase, and it will help you uncover the right information about the business. By asking the right questions, you’ll be well on your way to a rewarding and lucrative business acquisition. Your seller won’t tell you where to find any potential red flags, so you must understand what to ask and what information to collect yourself.