questions to ask buy business

November 9, 2015 / Buying a Business

While buying an existing business may be less risky than starting a new business from scratch, you still need to perform due diligence to reduce risk even further. Ultimately, you’re the only person who can decide whether or not a business is right for you. But we’re here to guide you along in the process and help you make the best decision.

By knowing the right questions to ask and what documents you should be looking at, you’re putting yourself in the driver’s seat.

The First Step

Before we go any further, let’s make sure we’re on the same page. You may have heard the term “due diligence,” but do you truly know what it means? Due diligence is a systematic process for acquiring and analyzing information to help a buyer or seller to determine whether or not to proceed with a proposed business transaction. In other words, it’s the complete investigation and review of a business.

You’ll want to see the numbers related to the operation of the business and the seller wants access to your financial information and credit score. Because of the sensitivity of the information, the first step is for you and the seller to sign a Non-Disclosure Agreement (NDA) to keep each other’s private information confidential.

This brings us to our first set of Frequently Asked Questions:

    1. What documents should I request from the seller?

You’ll want to see tax returns, summary balance sheets, cash flow statement, public filing and the lease contract.

      1. What documents/information should I be ready to give to the seller?

Get your resume, financial statement, and credit report from reputable third party ready for the seller. 

Questions to Ask the Seller:

This is important information-gathering. There really are no stupid questions at this point. The more questions you ask, the more you’ll learn about the business. Add whatever you’d like, but don’t leave any of these out.

        1. Why are you selling?
        2. Tell me about the businesses history?
        3. Who are your main competitors?
        4. What kind of hours are you putting in each week?
        5. How much time do you get to spend with your family?
        6. If you had unlimited money, how would you change things?
        7. What would you never change?
        8. What are the most important things YOU do as an owner to run the business?
        9. What will you miss about this business? What do you love about it?
        10. What is the worst thing that happened during your time as an owner?
        11. What have you done to grow the business?
        12. What challenges do they face?
        13. What makes money here? What are the biggest expenses?
        14. Why are you selling the business?
        15. What training will you provide?

Questions to Ask Customers:

The Q&A with existing customers will only happen if the sale is not confidential in nature.

        1. What is the business’ reputation in the community?
        2. How do you feel the pricing is compared to other similar businesses?
        3. Do you know anyone who used to be customer and isn’t anymore? If so, why did they leave?
        4. What could the business improve upon?
        5. If you could add one product/service/menu item to the business, what would it be?

Questions to Ask Yourself:

If you like what you hear, there are three key questions you should ask yourself:

        1. 1. Do I like the business?
        2. Can I see myself running it?
        3. Do I trust the seller?

No matter what stage of the question-asking process you’re at, ALWAYS listen well for what is said, and what isn’t said, and take notes.