Buying a business can be one of the biggest decisions you’ll make. To avoid costly mistakes, you need to know the right questions to ask. Asking the right questions will make sure you are making the right deal. Moreover, you will get detailed knowledge about how the business has performed in the past, the current health of the business, and what the future potential is. In this article written by the BizBen team, we will break down some essential questions to help you gather the right information and make a confident, well-informed choice.
When you buy a business, you’re not just taking over operations. You’re inheriting the financial health, reputation, and workforce. This means that doing in depth research (due diligence)— is extremely important. Asking the proper questions enables you to spot any possible red flags and gain a true understanding of the company's situation.
Let’s look at important questions across various areas to help you cover all your bases.
These questions will help you assess the strategic and financial impact of the purchase on your resources:
What’s my goal here? To gain new technology, enter a new market, or simply expand? Also, inquire about the purpose of the seller behind selling the business.
Consider if it would be more cost-effective to create your product or service rather than buying this one.
Think about how you’ll finance the acquisition through equity, debt, or cash reserves.
Mergers and acquisitions (M&A) are huge undertakings. Make sure you have dedicated resources to handle it.
Culture clashes can sink a deal. Make sure your values align with the business you’re acquiring.
Learning about the background of the business helps you understand what you’re stepping into:
It’s important to know if the current owner is retiring, facing financial struggles, or there are other reasons.
Longevity can be a good sign of customer loyalty and stability.
Knowing the ownership structure is crucial, especially if there are additional investors involved.
Past or present litigation could indicate deeper issues and could become your problem as the new owner.
These questions help you gauge if the business has growth potential or if it’s already peaked:
Speak with the owner about their vision and growth potential. Are there any new markets or opportunities on the horizon?
A business that relies heavily on one person can be risky, especially if that person plans to leave.
Identify potential successors within the company, or think about how you’d fill that role.
Get a clear financial picture of the business before making any commitments.
To check for consistency in profits, get the last few years' worth of tax returns and financial records.
Reviewing outstanding debts gives you insight into the business’s liabilities and any financial risks you may incur.
Check the equipment, intellectual property, and real estate owned or leased by the business.
You don’t want surprises with unpaid taxes. Review recent tax returns and look into any liabilities.
Research recent sales of similar businesses to make sure you’re not overpaying.
Even if everything else looks good, it’s essential to understand the daily workings of the business.
Look at headcount by function to understand the team’s structure and any key roles.
Get a clear idea of what the business sells and which products or services are most profitable.
Patents, trademarks, and other IPs can be significant assets if they add unique value to the business.
What are the essential financial documents to review when buying a business?
Always review the past three years of financial statements, tax returns, and debt schedules. This will give you an understanding of the business’s revenue, profit margins, and outstanding debts.
How important is the reason for the business being sold?
Very significant! The reason could reveal hidden issues. If the owner is retiring, it may be safe, but if there are financial problems, proceed with caution.
What’s a reasonable timeframe for due diligence?
Due diligence can take anywhere from 1 to 3 months, depending on the business's complexity. Don’t rush—thorough research is key to a successful acquisition.
What should I know about employee retention?
High turnover can be a red flag. Find out if key employees are likely to stay post-acquisition and if there’s a plan to retain talent.
What is BizBen, and how can it help in buying a business?
BizBen is an online platform connecting buyers with business sellers and brokers. It offers valuable resources, from business listings to articles and tips, to help buyers and sellers make informed decisions.
You may position yourself for a successful acquisition and make an informed choice by posing these queries and conducting in-depth research. Your future business depends on the answers you find, so don't rush this process!
Contributor:
The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups.
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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.
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If your business involves alcoholic beverage sales, we can help. Obtaining a liquor license transfer or selling a business with a license in California does not have to be a frustrating and overwhelming process. We have procured thousands of licenses for our clients.
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Cheryl's a restaurant business broker, over 25 years in the bar and restaurant industry coupled with a J.D. Cheryl works tirelessly to create successful strategies and effective negotiations for those who wish to purchase a new or sell an existing bar, restaurant, cafe, or night club. 415-309-2722
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Laundry consulting, due diligence, buyer representation: We preview laundries for you and evaluate them. 28 years laundry industry experience: buying, selling, valuing, retooling, analyzing, consulting services for laundry buyers and entrepreneurs in California. Contact us today about our services.
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