Buying a Business? What Questions to Ask Sellers?

You may have been working for someone else for years but have always wanted to run your own business. You’ve seen the potential profit you can make and you’ve decided to take that leap into the business world, but instead of building a business from the ground up you are thinking of buying an established business so you’re on the fast track to profit. You can’t simply buy a business without first asking the right questions to ensure you proper success and avoid potential disaster. But, what questions do you ask yourself and the business seller?

Questions to Ask Yourself

You should ask yourself the following questions before starting up a new business.

1. What do I want from being the owner of this business?

Is it you want to have more time to spend for yourself or with your family?
Are you ready for a change and want to be your own boss?

2. Why do I want to buy this business?

Is it in a good location?
What is driving the business? Customers, service, product?

3. Have I considered Valuation for this Business?

Have I considered the business valuation of the physical and intellectual assets of the business?
Should I consider looking at the revenue for past, present and future for success?

Questions You Need to Ask the Seller

1. What are your biggest challenges you’re facing right now?

You want to watch out for potential pitfalls when you are looking for a potential business to buy. An example of this would be you’re looking to spend $250,000 on a business, and you find out that the business currently needs $100,000 of extra capital investments. You need to find this information upfront from the seller while you’re still negotiating the purchase.

2. How did you come up with your asking price?

Sellers might base their asking price on how much they think they will need to retire and not based on the business assets and financials. Try to understand the thought process of how they came up with their asking price. If they are involving emotional factors you might be able to negotiate a better price.

3. What are the financials of this business?

It’s very important to have a clear paper trail for the businesses financial data. Tax returns and other transactional documents will help to see where the business is going. Are there any other income sources for the business and if so what are the profits and losses for that.

4. Have you had any lawsuits?

This could be past lawsuits, pending lawsuits or even potential lawsuits. It’s a good idea to avoid any businesses that have pending lawsuits. If the business has had past lawsuits, it’s a good idea to ask the owner what was done as a result of that lawsuit. This information may be important so you can learn from the owner how to avoid lawsuits in the future.

5. What happens to the employees after the sale?

You will need to find out if the employees have signed any non-compete, non-disclosures with the current owner and then reinforce those after the sale so employees can’t sell forms to a competitor.

Purchasing a business can be a major financial decision that can change your life forever. You need to ask the right questions to make sure you are getting into the business for the right reasons. If you’ve made the decision to buy a business be sure to ask some of the questions mentioned above and get the help you need from Sunbelt Business Brokers who are seasoned professionals in this field.