As a buyer, asking the right questions is crucial to ascertaining whether a business is worthy of your consideration for purchase. There are literally dozens of questions that you could ask however, I have listed the essential questions and areas that you must investigate before making any decision to proceed further.
Here are my 10 key questions any buyer should ask when considering the purchase of a business for sale:
1) WHY ARE THEY SELLING?
It’s the most simple yet obvious question to ask and infact will be the most insightful question you could possibly ask and will tell you a lot about the sellers integrity. The answer will either raise concerns or be met with no resistance. If the former occurs, consider your position very carefully. If a credible answer is given, you can no doubt move on with your questioning.
2) CAN YOU HAVE SIGHT OF THE ACCOUNTS?
Ask for permission to review the financial statements of turnover, cash flow, profit and loss, balance sheets and tax returns for the last three years. If you intend to borrow from a bank to purchase the business, any bank will want to see this information.
3) ARE THERE ANY DEBTS?
Does the business have debts owed to creditors, property or equipment leases? Information such as this can sometimes only be uncovered when it’s too late so ensure that the business is not funded on debt or has huge debts to pay or has long term lease agreements in place that could hamper the business cash flow.
4) ARE THERE ANY FIXED ASSETS AND WHAT IS THEIR PRESENT CONDITION AND VALUE?
If the business has numerous types of equipment or even equity or property, what are there present values? Does the equipment need replacing or repairing? Does the companies have any shares or equity that is accumulating in value? If the assets are simply depreciating, are they worth considering or are they simply worthless? Assets can sometimes appear to be worthwhile when in fact may be viewed as a liability to a buyer when it is clear they will need to be replaced or repaired which in simple terms means more investment and cost.
5) WHO ARE THE COMPANIES BOOK KEEPERS, ACCOUNTANTS AND LAWYERS?
A very straightforward question yet it pays to know who handles these very important aspects of the business. No doubt, if you are looking to start due diligence procedures into the business, your accountants and lawyers will need to speak to theirs and expect little if no resistance so that all necessary information can be ascertained. If you find that the business is lacking in any professional representation in these crucial areas, ask yourself if this business is really worth considering after all?
6) CAN YOU SPEAK TO THE EMPLOYEES?
Some sellers will happily let you speak to their team of employees if the sale is not of a confidential nature. If this is the case, it can help you gauge how the business operates and the mood of the team. There may have been a significant turnover of employees for example, which may point towards unhappiness in the ranks. Speaking to employees may not always be possible where confidentiality is key so this point can’t be regarded as a deal breaker, but advantageous if given the opportunity.
7) DOES THE BUSINESS HAVE ANY RECURRING CONTRACTS?
As the saying goes, turnover is vanity whilst profit is sanity. If a business solely relies of cold sales, market fluctuations can affect the overall turnover year on year. If however, the business for sale has recurring contracts in place with customers that run over longer periods of time, you can easily calculate a projected level of sales that are guaranteed annually which will add value to the purchase of the business. Fixed contracts are a sign that the business has good ties with its clients.
HOW DOES THE BUSINESS HANDLE CLIENT RELATIONS?
Many businesses neglect to maintain good client relations. Ask the sellers how they maintain communication and good after sales care with their clients. A questions such as this can be very revealing as many businesses can be guilty of resting on their laurels. A lack of after sales care is a true sign of taking your customers for granted.
9) DOES THE BUSINESS PRESENTLY HAVE ANY DISPUTES OR LITIGATION PROCEEDINGS IN PROGRESS?
Ensure you ask this question as any business you take over will also take on any disputes that are pending, in progress or close to conclusion. Don’t get caught out by handing over capital for a business that is about to be bled dry. It’s a terrible situation to end up in and in a lot of cases, there is little you can do about it unless the seller has deliberately misled you.
10) WILL THERE BE A HANDOVER PROCESS BY THE PRESENT OWNER?
If the business is sold, there should be a reasonable level of training or handover by the sellers to introduce you to the workings and day-to-day practices of the business. In most cases, the seller will happily negotiate a fee for their services or include this in the asking price when selling the business. Either way, this is an important part of the transfer and it would be unwise to go ahead with this agreement in place.
Naturally, there could be countless other questions you would ask the seller of a business for sale. However, each business is different and there is never an entire list that fits every criteria. These questions should put you in good stead and give you comfort in the knowledge that you have covered the basics at the very least. It pays to draft up a list of questions you want to ask as well as this little list, so why not add your own questions to ensure you are armed with a comprehensive set of questions to put to the business seller.
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