Non-disclosure agreements and other covenants are commonplace in business sales. The outgoing director will know all of the company’s trade secrets and can either give them to a competitor, or use them to create a competitor company. Strong marketing can be the difference between a good business and a great business. If you can see missed opportunities in the company’s current marketing strategy, then a fresh and effective campaign could transform the business. These could affect any plans for growth, so will need to be checked thoroughly before any decision is made. Once you’ve established exactly what you’re looking for in a business, you can start to identify possible targets.

If you asked yourself the 3 questions above and are satisfied with your answers, then you can proceed to this stage. On the other hand, others overhaul too fast and wreck the existing value in a business. Their contact had recently changed – and the new person played corporate politics like a pro.

General questions about the company

So, if you’re interested in buying a new business, thoroughly educate yourself before you erroneously inherit a money pit from the previous business owner. For SBA-backed deals, I like to download the seller’s brain and get them out within a couple of months. There are exceptions, depending on the business model, but generally, I want to take full control as soon as possible.

If there have been recent growth strategies implemented, are the sellers expecting an upturn in revenue from previous years? If you can see the value in the changes they’ve made, this could have an impact on how you see their business valuation. Ask to see all tax returns over the last three years, as well as documentation of any investigations or liabilities.

A bad acquisition can have dire consequences. We can help you avoid that

Determine the employee turnover rate and if any potential employees will leave due to the sale. Buyers can review employee contracts, benefits, and qualifications to assess the workforce’s stability and potential integration challenges. Salary increases may be warranted to maintain critical employees if their roles change. Asking pointed questions early in the process provides a clearer picture of the business’s actual value and what is required to run it. By uncovering hidden risks and strengths, you’re better equipped to negotiate wisely and plan for a smooth transition, minimizing disruptions and maximizing returns. Ask to review financial statements—ideally, the last three years of tax returns, profit & loss statements, and balance sheets.

What’s Your Asking Price?

Identifying potential disruptions and planning for them can help minimise the impact on your business. This might include managing workload redistributions, integrating new employees, or adjusting to new operational processes. If you’re buying a business in order to expand your own, it’s likely that you’re taking out a competitor in the process. However, if this is your first venture, you’ll need to have a firm understanding of potential rivals. Online businesses could be competing with anybody, but bricks and mortar companies can narrow down their market to a certain radius.

Bypass the common struggles entrepreneurs face when creating a successful business.

Perhaps one of the simplest but most important due diligence questions to ask when buying a business. Declining revenues don’t have to be a red flag necessarily, but you’ll need a solid plan in place to arrest the slump. If it’s a bricks and mortar business you’re considering, you’ll need to look in depth at the surrounding area. Plans for building nearby might bring extra customers to you eventually, but could disrupt your business during construction. Likewise, if nearby businesses are planning to move away, it could have a knock-on effect on your company by attracting less footfall to the area. This is one of the most important due diligence questions to ask when buying a business.

• It shows if people are happy with the business, if they’re loyal, and if the business model works.
• This information will help you assess the long-term viability of your potential investment.
• Many businesses enter into various types of contracts with different categories of people, from suppliers to employees, and even clients.

Related Posts

”, but it’s one of the simplest ways to test owner dependence. An agency in a fast-growing sector like AI or healthcare may attract a premium multiple, while an agency in a crowded or declining sector might face downward pressure. Similarly, businesses in stable, developed economies often sell at higher multiples than those in volatile regions, even if the fundamentals are the same.

• These are the kinds of questions I hear from nearly every small business owner I work with.
• 80% of small businesses listed for sale never sell because buyers uncover problems the seller didn’t disclose.
• If the seller were to lie about certain elements of the sale, a warranty can allow you to seek damages against them.
• What that is could be a bonus or even a problem, but it’s worth asking.
• So, sit down and come up with an exhaustive list of questions to ask that’ll elicit the exact information you need.

For example, if you’re buying a restaurant, it’s a darn good idea to have some experience actually working in one beforehand. Purchasing a business 7 questions to ask before buying a business because you’re bored isn’t a good reason. Running a business can be tedious, and it definitely is hard work.

Ensure the business has all necessary licenses, permits, and certifications from industry organizations. Get the best price for your business — we take care of the rest. Also, evaluate them to see if they fit your management style and if they’ll be willing to implement your business goals and visions. Every business has people in control of its resources and its workforce. Ask if the company is willing to allow you to negotiate their offer or if the price given is final. Ask for a comprehensive inventory of all that will be transferred to you after the purchase.

What are the ongoing costs?

Don’t give potentially unscrupulous sellers any opportunity to avoid telling you salient information. “Around 20k” may sound like £21k to you, but may mean £30k to them. You’ll need to be incredibly stringent on your vetting for potential partners. Going into business with a friend is a sure-fire way to lose friends. You’ll need to ensure that any potential partner is 100% in agreement with you about what direction you intend to take the business. It can be easy to underestimate just how much time you’ll need to spend on a new business.

If you have other commitments, it may be worth considering if you’ll be able to give a business the attention it needs. A business plan shows that you’re serious about your business. These are two things potential lenders are going to want to know.

To make an informed decision and reduce risks, you need to ask the right questions. Below are seven essential questions every buyer should ask before finalizing any deal. These will help you understand the business’s true value along with potential risks. If the business’s success heavily depends on the owner’s skills, knowledge, and personal relationships, there may be a risk of disruption once the owner departs. This could result in a decline in performance or even failure of the business post-sale.