Thinking about buying an existing business? Before you do, make sure you know the answers to these ten questions.
Questions to Ask When Buying a Business
Before buying a business, there's a lot of information that should be gathered. This information comes in the form of answers, with the key questions falling into three main categories: general business operations, the finances, and the previous owners. Read on to see why.
Four General Business Questions To Ask
The first, and most important question to ask about a business being sold is Why is the business being sold? The answer to this can be simple; retirement, death of an owner, financial mishap or family issues. Whatever the answer, it must sound realistic.
Other general business questions pertain to the history of the business such as:
- What is the past history of the business?
- How many owners has the business had? If there are many, why?
- What was the initial response to the business when it first opened?
- What is the outlook for the business?
Find out who the past owners were, why they sold or left the business, and if there is a pattern to it such as none of them could make it profitable or similar issues kept arising for each owner. if the business is new, find out how people reacted to the business when it opened. Talk to customers and suppliers (without divulging about the possible change in ownership). Look at future trends to see if the business can continue in its current form; and if so, look at the potential for growth.
The Four Business Finance Questions
This brings us to the next section, finances, which is also extremely important in the business buying decision. Four of the ten questions about the business deal with finances:
- Is the business paying the bills and are they current?
- Are there any loans? If so, what are the terms?
- What is the condition of the business credit?
What is the cash-flow?
When buying an ongoing business, the new owner can be held liable for previous debts incurred by the former owners. Most business loans are in the name of the business and therefore subject to being passed along with the business. Because of this, prospective owners must know about good and bad debts as well as how long ago they occurred. There should be a continuous pattern of equal, or less, money going out than what comes in.
Two Important Questions About The Owner
While the life of the previous owner may not seem important in regards to the business buying decision, it is. Two key questions about the owner or former owner must be answered:
- What impact has the owner or former owner had on the business?
- What is the reputation of the owner or former owner in regards to the business?
Business can be greatly affected by the reputation and impact of an owners actions. Smaller family run businesses especially fall into this category. If a former owner isn't well liked or has built up a bad name with the community, this could hamper both resources and income for future owners.
Does It Look Realistic
This is a question which must be asked before handing any money or signing any paper. Look at all of the information provided by the current or previous owners. If any portion of the information appears out of place or sets off suspicions, dig deeper to find out the reasons. Once the sales contract is signed, it is very hard to go back and claim neglegance.
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