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40 Common Questions to Ask When Buying a Business

    
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Buying a business is like making any other investment: you want to be sure that it’s a smart and sound use of your money. Most crucially, you need to verify that the business is actually worth the price that the seller is asking, and that you’ll be able to keep generating revenue long after the transaction is complete.

This means that performing your due diligence by asking the right questions is a critical part of the buying process. In this article, we’ll suggest some of the most important questions to ask when buying a business, separated into a few major areas of inquiry.

General

When speaking with the seller, it’s a good idea to start off with some “icebreaker” questions that can guide you into other topics to explore.

Understanding why the business is being sold is a particularly important question: the owner may simply be retiring, or there may be deeper problems and red flags such as diminishing revenues.

  • How old is the business?

  • What is the complete history of the business? Has it been for sale or purchased before?

  • What are the greatest strengths and biggest challenges of the business?

  • Why are you selling the business?

  • Are you in discussions with other potential buyers?

Financial

Prospective buyers should go over every inch of the business’s financials with a fine-toothed comb before seriously contemplating the purchase. If necessary, seek the assistance of a qualified accountant or other financial professional.

  • What is the financial health of the business? What are the company’s audited year-end financial statements from the past three years (including balance sheets, income statements, and cash flow statements)?

  • What are the company’s tax returns from the past three years?

  • What are the revenues and net profits from the past three years? How do these figures break down in terms of different products or services, or different customer segments?

  • What are some of the business’s key financial metrics and ratios (e.g. debt-to-equity ratio, net profit margin, and return on equity)?

  • Does the business have any debts, liabilities, or accounts past due?

Legal

Just as an accountant can help you with financial questions, it’s highly advisable to have a lawyer look at any contracts or laws pertaining to the business—as well as the eventual purchase agreement, if it comes to that.

  • What are your existing contracts with vendors and employees?

  • Do you have any leases or mortgages for your physical business outlets?

  • Are you up-to-date with all necessary business permits, licenses, and certifications?

  • Is the business currently involved in any lawsuits? Has it been involved in lawsuits in the past?

  • What intellectual property assets does the business have (copyrights, patents, trade secrets, etc.)? How does it protect these assets?

  • What laws or regulations affect the business? Are there any upcoming changes to the legal landscape that could affect the business’s operations or profitability?

Business

Financial and legal risks are some of the biggest reasons why transactions fail, but you also need to be sure that the business is viable for the indefinite future.

  • Who are your biggest competitors? How does your business distinguish itself?

  • Who are your target audiences? What does your customer base look like? Are most of your customers recurring or one-time?

  • What is your current and historical market share?

  • What are your sales and marketing campaigns? What are your historical and current sales forecasts?

  • How many employees do you currently have? What are their roles, salaries, and benefits?

  • Who are your current vendors and suppliers? 

Price and Purchasing

Once you’ve thoroughly vetted the business itself, you can discuss the transaction price and the logistical details.

  • How was the asking price for the business calculated?

  • Which assets are included in the price?

  • Is the price of the sale negotiable?

  • Will you accept offers with financing, or only all-cash deals? Is seller financing available?

  • Do you plan to retain some ownership of or role in the business after the sale? Will you assist during the hand-off period to ensure a smooth transition?

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