If you are thinking of buying a business, you will need to start by asking the right questions, ensuring you get a great investment and the best deal you possibly can.
When you are looking to buy a business, you are inherently taking a risk. One of the ways to help you reduce that risk is to make sure you ask questions, and lots of them.
There are no stupid questions to ask when buying a business. There are however important ones. These are questions that will determine whether the business you are looking to buy is as significant an investment as it seems to be.
Here are a few but necessary questions you should be asking the seller before you commit to buy.
Why are you selling your business?
This may seem like a simple question to ask but is one usually not given the right amount of attention that it deserves.There could be many legitimate reasons a seller has to sell their business, they could just want to retire, they may lack the necessary capital to expand their business, they may be moving out of the area, and you can’t pack up and take a local fish and chip shop with you when you relocate.
But you may also find that the business your looking to buy could be failing, or in need of a complete re-haul in both management and financial support. Asking the reason for a sale is not a redundant question and can save both you, as the buyer, and the seller a lot of time.
How are you justifying your asking price?
For many sellers, the asking price is usually what they feel the business is worth to them, quite often enterprises are personal to their owners and as such the seller may ask for a higher price than the actual company is worth.
Before you commit to any price, make sure you ask the seller to back up their asking price with facts and figures that make sense to you as a potential buyer. Asking for this price breakdown will also alert you to any potential problems as well as give you some negotiating room when it comes to you putting in a reasonable offer.
Is the business financially viable?
There is nothing quite like asking this question in person. You can tell a lot about your potential business from the way the seller behaves and sounds when this question is asked of them. If the business is financially sound, then there will be no problem with anyone related to selling you the business answering your question fully.
If you don’t get a clear answer or the seller dodges the question entirely, then this could be a sign for you to look elsewhere. You should always have your accountant look through official records to double check everything the seller tells you regarding the finances of any business venture you are interested in buying.
Do you have full accounts and other financial records for your business?
The most important question you need to ask. Any business you are looking to buy must be able to provide you with previous tax returns, purchase orders, invoices and other documents that validate both the past success and the potential earnings that the seller has claimed that the business can make.
It is also important to know that the business has paid the correct amount of tax and is fully accountable and legally compliant. The last thing you need when looking at buying someone else’s business is to be caught up in a case of fraud.
If the seller cannot provide you with these documents, then you will need to be very wary as to the reason why and be prepared to pull out of any deals you were willing to make immediately, as this could be a warning that the business you are looking at isn’t as financially or legally viable as it seems to be.
Are there any legal issues I should know?
You need to make sure that the business you are buying isn’t passing on any lawsuits or any other forms of litigation on to you. It is always best to ask the seller and to have your lawyer and accountant check these claims correctly before you make a bid for the business in question.
Have you had the business appraised?
Again, this is an excellent question to ask to give yourself a better idea of just how much the business itself is worth. As an appraisal is provided through a 3rd party service, you can usually depend on the pricing to be more accurate, as the company involved wouldn’t be involved in the sale of the business, and they will consider details that the seller might not.
Who are your customers?
The seller should know the answer to this question and be able to give you a clear idea on just who your potential new businesses clients are likely to be. Knowing a business’s current customer base can help you determine if the business is both viable and a good match for you.
There is no point in trying to buy a business that deals exclusively with little old ladies if you have previously only worked with B2B clients, this could end up being very costly to you in the long term, simply because you didn’t ask this question at the beginning.
Will the business come with an existing client base?
Another good question to ask is if the company would be purchased with an existing client base. Knowing if the business would come with its current clientele, can mean the difference from leaving the business open and a drafting a simple ‘change of management’ notice, or of temporarily running the business at a loss while you build up a new customer base.
You will also need to know who the customers are loyal to, the business itself or the owner. This could determine if a business is viable, especially if you are looking to purchase a ‘ready to go’ business.
Does your business have any employees?
Purchasing a company with employees is an entirely different prospect than buying one that doesn’t. There are more legalities to perform if the business you are buying has staff, and this may not be something you have had any experience with and as such may not be a suitable venture or may require you to do more research before placing an offer.
How much are your employees aware of the situation?
Are the employees aware that the business is being sold? Do they know the potential risks to their employment from the sale of the business? These are essential questions which you need to know as a potential buyer. Problems can arise if you buy a business, with employees, especially if the sale isn’t public knowledge.
You will need to ensure that the transaction happens as seamlessly as possible for all parties involved, as well as being aware that employees may look at the deal as a threat to their careers, and as such look elsewhere for employment, leaving you potentially without a crucial member of staff at a critical time.
How long is left on your commercial lease?
A great question to ask if the business you are looking at has a physical shop or office, that can potentially be an important one depending on the answer. Finding out after purchasing a business that the lease only has a few years left can be an expensive mistake to make.
Finding out sooner rather than later can give you time to find out if the lease is renewable and if so for how long and how much is the cost to you. You should also make sure to ask if they have a copy of the lease contract available for you to look over and pass along to a property lawyer who can help you determine if the lease terms are in good order.
What will happen if you can’t sell your business?
This is a question you might not think to ask, but it could be a very beneficial one to ask. It could give you a good idea on how the seller is feeling about the sale of their business, and if they have given themselves a deadline on the sale. Asking this question could boost your negotiating power, depending on the answers given, especially if the business has been up for sale a while. These are all good questions to ask the seller, but a critical one is something you can only ask yourself.
Are you ready to buy a business?
Taking on a business, whether it’s your own or someone else’s, is a big decision and will involve a lot of work behind the scenes to make sure you have everything in place before the sale goes forward. If you aren’t prepared, then buying a business could lead to financial issues at every step, before you put an offer in, take a day or two to ask yourself the question; are you ready?