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Questions to Ask When Buying a Business

by Stephen Windhaus

There are so many questions to ask when considering the purchase of an existing business. In fact, there is not enough room on this page to list them. But let me give you a few examples that relate to financial, marketing, ownership and operations:

  • Most importantly, why is the seller selling? The answer will either raise red flags or be consistent with, and met with, no resistance when asking the information in the questions below.
  • Have you asked to review the certified financial statements of income, cash flow and balance sheets for the last three years? If you borrow from a bank to purchase the venture, the bank will want to see them.
  • Have you asked to see the company’s (not the owner’s personal) tax returns for the last three years? The bank will.
  • Have you asked for a copy of all documents of all outstanding indebtedness like accounts payable, property and equipment leases? The bank will.
  • Has the seller offered to stay around for awhile after the sale to help with transition, and have you discussed some compensation for his services during that transition period?
  • Have you been allowed to talk with the employees, or is this sale of a confidential nature at this time? If so, why are the employees not being told of the impending sale?
  • Has there been any significant turnover of employees? If so, why is that?
  • Have you learned anything about the quality of customer relations at the company? Is there a close relationship between company and customers?
  • Have you learned anything about the relationship between the company and its vendors? Do vendors display preferred, regular or irregular relations with the company?
  • Are there any members to a management team for this company? If so, are they aware of the impending sale, and how do they feel about it?
  • What are the actual conditions of the working environment? Are there any hazardous situations or is this a well-kept workplace?
  • What are the actual conditions of existing fixed assets like office equipment, machinery, vehicles and the like? Do employee, managers and supervisors demonstrate good maintenance and cleanliness of company property?
  • There is so much more to ask, but this is a brief list designed to give you a starting point from which to begin the investigation of the venture in which you are about to invest.

We have not even discussed the issue of fair market value or selling price of the venture. I would suggest you will want to examine some of the expert panel responses on this subject. It is a detailed matter requiring a significant explanation.

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{ 1 comment… read it below or add one }

Mike Desrosiers February 2, 2010 at 3:59 pm

I’m interested in buying a local motorcycle shop which recently started up 8 months ago and the owner unexpectedly passed away and now his wife would just like to sell and have nothing to do with it. I’m currently meeting with her and asking for financial statements along with a list of inventory, vendors and licenses, permits, building lease, and busi. insurance. What might be some other suggestions be on actually getting an acurate value on this business when it has only been in operation for 8 months. A little history: Average medium size town with no other motorcycle shops, a surrounding town does have one, besides numerous dealers in the surrounding city. Good location on main street through town. Lease seems to be of fair value. Any help would be appreciated. Thanks Mike

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