There are no stupid questions. This is what you should consider when doing your research before buying a business. The more questions you ask, the less risk you will have. But just in case you have no idea where to begin, here is a list of ten questions as a starting point of a thorough investigation.
You want to be aware of potential issues. For instance, if you’re buying a company that will need improvements, you need to know that before deciding to acquire the business.
2 – What would you have done differently?
This question will give you insight into opportunities not pursued yet and learn about the growth potential of the business.
3 – How did you arrive at your asking price?
Sometimes sellers base their asking price in what they will need to move on with their lives. It is useful to understand their thought process because you can get more room to negotiate.
4 – If you can’t sell, what will you do instead?
This is another way of knowing your bargaining power. If they say they will give it to an employee or close it, you will have space to negotiate a lower price.
5 – How will you document the financials of the business?
The seller needs to prove with appropriate documentation the company’s revenue, other income resources, profits and losses.
6 – Do you have any past, pending or potential lawsuits?
That is obvious, you don’t want to buy a litigation. For your protection, get the response in writing in case the owner is hiding something.
7 – How well documented are the procedures of the business?
If the business is doing well, you want to carry on with the procedures of the previous owners without disrupting the flow of business, clients and staff.
8 – How much does your business depend on a key customer or vendor?
If the business is too reliant on one customer or vendor you are taking a big risk because they may be too loyal to the previous owner and abandon the new business.
9 – What will employees do after the sale?
It is important to know what key employees will do because you don’t want them going to competition and taking all the clients with them. Make sure they have signed a non-compete and non-disclosure form.
10 – What skills or qualities do I need to run this business effectively?
You need to know what skills you need to run the business or if you can learn them. An introverted person may not consider immediately the demands of an entertainment house, as the importance of hosting for instance.