So, the entrepreneurial spirit has overcome you, and you are ready to have your own business. You want to be the master of your destiny and of your time.
Before you get started, there are questions to ask when buying a business whether you are just getting started, or you are acquiring another business.
To help you get things started, we have compiled a list of these questions you need to ask before buying an existing business.
Questions to Ask When Buying a Business
What Makes You Want to Buy this Business?
You may find the answer to this one easily. For instance, maybe this is a business that has been around for a long time, and you want to see it continue.
Maybe you just have a passion for the specific industry, like a music store, for instance. If the answer does not come easily, you may have to dig a little into yourself.
Why are the Owners Selling the Business?
Find the answers to questions related to the business’ history, existing management team, location, former business establishments that may have failed there, and what kind of customers it serves and what kind of reputation the business has built.
You need to know why they are selling. While you are at it, find out what the projected outlook for the industry and this business could be.
How Much Capital Will You Need to Buy and Operate the Business?
The funding you need for buying a business goes beyond just buying the property and current assets.
It also involves how much working capital you will need to handle business expenses like payroll, rent, utilities, inventory, etc.
Review and evaluate the current owner’s ledgers and discuss these costs with them.
How Do You Plan to Make This Business Successful?
This question may also work alongside of why you want to buy the business. You need to consider marketing, budget, accounting, upkeep, overhead, staff, etc.
If the business seems to require some updating or a facelift, consider that as part of your strategic business plan.
How Much is This Business Worth?
Do not forget to find out the business’ worth. This question could go along with number 2 because this could relate to why the owner is selling.
If it is not why they are selling, a market analysis, which can be done by most real estate brokers, would be a good idea.
Request the Business’ Financial Statements
Current financial statements will tell a story about the business you want to buy. It will give you an idea of how things have been going for the past three to five years.
Be sure to get any current leases, contracts, and their tax records. By the way, these statements should have already been audited by a reliable accounting firm.
If their records have not been vetted by professional accountants, ask the current owner(s) if you can have your own independent audit done.
If they refuse, you may have good reason to feel something is amiss and look somewhere else for a business to buy.
Request a sit down with the owners to find out their perspective on the business, among other things.
You can do this by working through the attorneys, the real estate firms, or you can write a letter asking them to meet with you.
When you speak with the owner(s), ask them how involved they will be in the transfer of power/ownership and if they would like to help in this process.
It helps the employees and you acclimated more easily.
You also need to know what key employees you should keep and which ones should be let go. That is the hard part of buying a business.
You may want to consider having a chat with the employees before making hiring or firing decisions.
Remember to ask the owners for a current list of clients, so you know who owes money and who is up to speed.
It is all part of taking over the business, and why you may want the owners there to help.
Ask them how they handle their marketing, take a look at their business plan, find out if there are any past, present, or pending lawsuits against them, and how much they pay themselves from the profits of the business.
Finally, you may want to prepare for the time when you want to sell the business to someone else, even if that is many years down the road.