Questions to Ask When Buying a Business 7

There are so many questions to ask when considering the purchase of an existing business. In fact, there is not enough room on this page to list them. But let me give you a few examples that relate to financial, marketing, ownership and operations:

  • Most importantly, why is the seller selling? The answer will either raise red flags or be consistent with, and met with, no resistance when asking the information in the questions below.
  • Have you asked to review the certified financial statements of income, cash flow and balance sheets for the last three years? If you borrow from a bank to purchase the venture, the bank will want to see them.
  • Have you asked to see the company’s (not the owner’s personal) IRS returns for the last three years? The bank will.
  • Have you asked for a copy of all documents of all outstanding indebtedness like notes payable, accounts payable, real estate and equipment leases? The bank will.
  • Has the seller offered to stay around for awhile after the sale to help with transition, and have you discussed some compensation for his services during that transition period?
  • Have you been allowed to talk with the employees, or is this sale of a confidential nature at this time? If so, why are the employees not being told of the impending sale?
  • Has there been any significant turnover of employees? If so, why is that?
  • Have you learned anything about the quality of customer relations at the company? Is there a close relationship between company and customers?
  • Have you learned anything about the relationship between the company and its vendors? Do vendors display preferred, regular or irregular relations with the company?
  • Are there any members to a management team for this company? If so, are they aware of the impending sale, and how do they feel about it?
  • What are the actual conditions of the working environment? Are there any hazardous situations or is this a well-kept workplace?
  • What are the actual conditions of existing fixed assets like office equipment, machinery, vehicles and the like? Do employee, managers and supervisors demonstrate good maintenance and cleanliness of company property?
  • There is so much more to ask, but this is a brief list designed to give you a starting point from which to begin the investigation of the venture in which you are about to invest.

We have not even discussed the issue of fair market value or selling price of the venture. I would suggest you will want to examine some of the expert panel responses on this subject. It is a detailed matter requiring a significant explanation.

Another relevant source of information on buying and selling businesses is the Entrepreneur Magazine Small Business Advisor. It is an excellent book with a most extensive array of subjects for any small business entrepreneur, addressing all aspects of the operation in easily understood language and graphic examples of the topics. It is an excellent investment for the purchasing process and can be used repeatedly when operating the venture. It is readily available online or at a reputable bookstore.

About the Author Stephen Windhaus is the Principal of Windhaus Associates, a business planning firm he founded in 1999. He has over 20 years of experience in the public and private sectors assisting existing and start-up entrepreneurs through small business development centers, incubators, university and community college settings and private practice. He has written online for Bankrate.com, BizLand.com… Read more »

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  • Gregory

    Very well laid out for those of us purchasing an existing business for the first time. It fills out those areas that I might have missed.

  • Everett

    Thank you.
    The information was very helpful.

  • http://www.thebusinessplace.com Gary Landa

    Keep in mind the economy is changing very quickly and the profitability of the company in the past may be significantly different now than one year ago. Last year’s financial statements reflect the first 6 months of the year which may have been above average, the last 6 months may have been poor but overall, it may look profitable when in fact the company is currently experiencing losses.

  • http://jdhold@cox.net Joe Hold

    Where can I get comparison data on small business financials such as ROI, cash flow, return om equity,. ?

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  • http://us.businessesforsale.com/ Shaun

    Great Resource! I completely agree with Gregory, this article is very well laid out in terms of questions to ask the current owner. I strongly believe in researching as much as you can about a particular business in order to have the best idea possible whether the business is right for you. There are websites that offer buy business articles and other information to help with any other issues and questions related to helping you buy a business.

  • http://www.commercialofficecleaning.net Terry Klymkiv

    Great article that lists some very important questions buyers should ask before buying the business.

  • Kenneth

    This is a nice article. Very informative