Questions To Ask When Buying A Business

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If you are a prospective buyer, you want to find a business you like and in which you feel comfortable.  You have a vision of being your own boss and calling your own shots.  The first question is important and sometimes overlooked.

GENERAL INFORMATION
How do you know you are buying the right business for you?
Buy a business you like.  Although profitability is important, you will risk making a terrible mistake if you do not buy a business that you like.

Often, people who buy hastily without considering personal satisfaction later sell their businesses at a loss.  Will you be proud to own the business?  If you are not sure, do not buy that type of business.  Be flexible and open to all sorts of businesses.  First, decide if there are any categories you do not desire to consider; then focus on the remaining categories.

What are the advantages of buying an existing business rather starting one from scratch?

The chances of failure are much lower when you buy an existing business.  You have the proven record of the seller, including financials, customer lists and location.  You also have training from the seller and introduction to suppliers and others important to the business.

QUESTIONS TO ASK THE SELLER 
When you find a business that appears to meet your needs and you are ready to meet the seller, the Business Broker will schedule an appointment.  You need to write a list of questions you want to ask so you will get everything answered.  The following questions should help you decide what to ask.  You may think of other questions, but these will guide you

GENERAL
Why are you selling the business?

If you were starting out again, what would you do differently?

Do you plan to start or buy another business?  (The seller will sign a non-compete agreement at closing specifying your requirement for the distance protected and the length of time required.)

Describe your ideal buyer of this business.

COMPETITION
Who are your competitors and what are their strengths and weaknesses?

What would your customers say you do best?  Why do they go to you instead of your competitors?

Are any large competitors coming into the area in the near future?

CUSTOMERS
What are the demographics of your customers?

What percentage of your business comes from referrals?

How much of your business is repeat?

Will loyal customers likely leave because the seller leaves?

EMPLOYEES
How many employees do you have and how long has each employee been with the business?

How many employees earn salary and how many wages and how much?

Are employees trained for only one position or can they fill in for other positions as needed?

Are some employees trained to fill in for the owner when needed?

(Most sellers will not give detailed information on employees until an accepted offer to purchase is signed, but they will give general information asked here)

LEGAL
If your business name is the name of your corporation, will you change it so I can continue with the name of the business?  

What licenses and permits will I need and what are the costs for them? 

How long does it take to get the licenses and permits after I apply for them?

If a franchise, what is the name of franchisor to contact?  Could I see your copy of the franchise agreement?

Explain the types of insurance you have, the carrier, and the amount you pay.

Are there any liens against the business?

MARKETING
Does the business have a business plan and a marketing plan?

Is the marketing plan available?

How have you marketed the business?

Where do you advertise and how much is your advertising budget?

Do you have a website?  If so, how is it used?  If not, why not?

PROPERTY
Do you lease or own the property and building where the business is located?

If you lease, what are the terms of the lease and the amount you pay per month?

How long have you leased (or owned) the building?  Could it be purchased now or at a later date?  Is it possible to do a lease/purchase of the building?

Is the Landlord local and when can we meet?

It is important for the business owner to introduce you to the landlord so you can begin to work on a suitable lease.  Do not delay this.  While some leases can be completed rather quickly, most take time to be approved.  Your offer will have a date on which you will receive a suitable lease.  If this does not happen or the time to receive it cannot be extended, the offer to purchase will become void.  If the owner of the business owns the property, a lease will be offered to you for your approval.  You will likely have no problem agreeing on the terms of the lease; but like any lease, your offer will be void if you do not receive a suitable lease.   

Is all of the equipment in good working order?

SUPPLIERS
Who are your suppliers and will they set up accounts for me with the same terms they give to you?

How much inventory do you carry?

FINANCIAL
How much working capital will I need to continue the business until the cash starts flowing into the business?

Where do you bank?   

What percentage of Accounts Receivable is paid late and how many bad debts do you write off each year?

When can I get copies of your financial statements and income tax returns for the past three years?

Will you offer owner financing?

A certain level of trust must be present for a seller and buyer to have a smooth sale and transition, but you must not just assume that everything is accurate.  The information the seller gives you by mouth must be backed up with written information.

These are just some suggestions to get you started.  With all of the information you obtain, you will want to write a business plan and think of ways you can improve the business and increase the profit over the years ahead.

  • Author: Pat Jones
  • Title: Business Owner - Business Broker
  • Company: Pat Jones Business Brokers
  • Company Website: http://www.patjones.biz/
  • Date: December 19, 2019
  • Category: Buying a Franchise or Business
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