Buying a small to mid-sized California business can be a complicated process. Once you go through the actual sales process, you actually have to run the business you just bought! While being an Entrepreneur has its perks, it can also be challenging so before you decide to buy a business, you need to make sure you are ready for the challenge and that you have a thorough understanding of the company you plan to own.
I have been a part of many deals throughout my time in this industry and I can't tell you how often business buyers miss information about the company they plan to buy because they aren't prepared with a list of questions to ask. Each transaction is different so ask additional questions specific to your own situation but here is a list of 10 questions to get you started.
Ask yourself these questions before starting the process of buying a business. Once you find a business you are interested in, I've given you another set of questions to keep in mind as you do your due diligence.
Personal Questions to Ask Yourself before Buying a Business:
Is it the right time?
While being an Entrepreneur may be something you've always wanted to pursue, before you buy a business you need to be honest with yourself. Evaluate your current circumstances and decide if it is the right time for you to take this leap. As I said, the process can be challenging and demanding so keep your personal commitments in mind as you think this through.
Do I have the support of my spouse or significant other?
When you become a small business owner your schedule and your finances may change. Make sure your significant other understands this and they are willing to support you if things don't go as planned.
How much working capital do I have access to?
Having access to working capital is important to ensure you can keep the business running if you should incur unexpected expenses or changes in revenue. I've seen people buy and run small businesses successfully without much working capital but it's always good to have a safety net and to be honest with yourself about the risks you're taking.
What do I want the business to do for me?
I suggest you decide early on what you want out of the business you plan to buy. Some people buy businesses as a career move and plan to work at them daily. Others buy businesses for a stream of residual income. Decide what you want up front so you can look for a business that can accommodate you.
Questions to Ask About the Business:
Why is the owner selling?
Asking why the owner is selling is important for a number of reasons. For one, it may help you uncover problems with the company if the owner is selling because of declining sales or other problems. It is also important because if the owner is in a hurry to get out you can use that information in your favor during price negotiations.
How did the owner arrive at the asking price?
Ask the owner what methods they've used to arrive at the asking price. This can help you evaluate whether the business is fairly priced.
How much is the owner taking in salary?
Many people don't think to ask this and it is very important. If the owner is taking a salary of $50,000 and you're accustom to living off of $100,000 per year you need to decide if you are willing to make the adjustment to your income or if the business can afford to pay you more.
What can I do to grow or improve the business?
Even if the company you want to buy is doing well, it can always do better. Before you buy a business that is for sale you need to have an honest conversation with yourself as what skills and experience you can bring to the table that would grow or improve the business after you own it.
Is the seller willing to sign a non-compete?
Regardless of what the circumstances are for the sale, I suggest you get the owner to sign a non-compete if appropriate. You don't want the owner to sell you his or her business only to open up shop down the street as your competitor.
What is my exit strategy?
Your exit strategy is probably the last thing you're thinking about at this point but I encourage you to consider it early on. If you think about your exit strategy you can buy and grow a small business that will provide you with the opportunities you want today and in the future when you are ready for your next venture.
About The Author: Peter Siegel, MBA is the Founder & Director (ProBuy & ProSell Programs) at BizBen.com. He is also a Business Purchase Financing Expert and Advisor. He works with potential business buyers, business sellers, brokers, agents, investors, & advisors. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a puchase of) small to mid-sized businesses.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Selling Your Business To One Of Your Employees - A Good Idea? Pros And Con
After investing years of time and talent into a company, many small business owners want to feel like they are leaving their business in good hands and for that reason, some sellers opt to sell their business to an employee. Peter Siegel, MBA talks about the pros and cons to taking this route.
|Before Buying A California Business, 10 Questions You Should Ask Yourself
Before buying a business, all serious business buyers should ask themselves some key questions about possible buying a small California business, franchise, or opportunity - from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 866-270-6278.
|4 Reasons Why Business Brokers Do Not Cooperate With Other Brokers & Agents
Despite challenges in the business for sale marketplace, some of the business brokers who make a living by facilitating a deal between buyer and seller are known to stand in the way of a completed transaction because of some outdated ideas. Too bad they put greed ahead of the needs of their clients.
|Tips For Faster SBA Loan Approvals For California Small Business Purchases
In this article on BizBen, business purchase financing advisor and SBA loan broker, consultant Peter Siegel (Business Purchase Financing Expert/Advisor & the ProBuy Program Director at BizBen) at 866-270-6278 shares his views of getting SBA loan financing faster for business purchase financing.
|Thinking Of Selling My Business: What Factors Create Value And Drive Price?
There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.
|Should I Buy A Business That is Losing Money? Feedback From Top Advisors
Are businesses worth taking a look at when they are losing money? Multiple Advisors & Business Brokers weigh in on this topic and say yes! (but be careful) on a BizBen Discussion. Some great feedback on this topic will make potential business buyers (and money losing sellers) want to read this info!
|Why Isn't My Business Selling? 6 Great Questions To Ask Yourself For Answers
It can take months, sometimes longer to sell a small business. Here are 6 questions from Peter Siegel, MBA (Business Purchase Financing Expert, ProSell Program Advisor with BizBen) at 866-270-6278 to ask yourself to help you determine why your small to mid-sized California business isn't selling.
|How Do I Navigate Through The Negotiation Process When Buying A Business?
Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.
|See All News, Tips And Events|