36 Questions to Ask before You Buy a Business – Part 2

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36 Questions to Ask before You Buy a Business – Part 2

Questions to Ask before You Buy a Business

Happy business people with their heads together representing concept of ftiendship and teamworkIn the last post, we covered questions to ask before you buy a business related to products, services, and financials. Today, we’re going to get into Customers and Employees… two very important pieces of your business. Without customers, your business will have no income. As such, you’ll want to be sure you’re on top of the key details related to customers. Not every business has employees. However, if the business you’re purchasing does have employees, you’ll definitely want to know what you’re walking into. So, continuing where we left off, number 11.

Customers

11) Do you keep a customer list?

In another post, I mentioned the cost to obtain a new customer versus retaining an established customer. As such, you’ll want to retain those relationships. Having access to the customer list will allow you to make contact with those customers and establish a new relationship under your ownership.

12) What kind of contracts do you have in place with customers?

Objects on deskIf you’re lucky, you might even acquire a business which not only has established loyal customers, but also customers under contract. You don’t want to lose their business. Knowing who those customers are and obtaining the documentation will help ensure you not only provide those customers with continuous service, but also help you make plans to renew those contracts when the time comes.

13) Do you have key customers you rely heavily on to sustain the business?

Some businesses have a few select clients that bring in the bulk of their revenue with a few smaller clients intermingled. Though every customer is important, it’s crucial to be aware of those cash cow clients, as the loss of a big client can have a significant impact on the overall state of your business. If your unable to absorb the cost through other customers, you might find you’ve created a sinking ship.

14) How likely are customers willing to jump ship after the transfer of ownership?

Speaking of ships, it’s a given you’ll have some attrition when you claim ownership of the business. Feel the seller out and get an understanding of the customers who are there specially because they want to deal with the seller. Find out what he/she has done to acquire customer loyalty, as you may find ways to retain those same customers despite their loyalty to the owner. After all, if the owner is abandoning his/her business, those customers will be looking for similar services elsewhere. It’s up to you to find ways for them to realize there’s no need to go elsewhere.

Employees

15) How many employees (Part-Time & Full-Time)?

For many company, employees are the biggest expense of doing businesses, but they’re also the biggest asset. Knowing how many employees you have on board will help you determine your capacity.

16) Is the staff sufficient to meet the current need? Is the company overstaffed?

Tired businessman working in the officeNot having enough employees to do the job can be stressful, not only for you as an owner, but for the employees themselves. Overworked employees are more likely to stay, especially if they’re not feeling valued. Your employees suffer, but so do your customers, as they won’t be receiving the quality they should when your employees are stretched too thin. On the other hand, it’s also difficult to let employees go, which can lead to overstaffing. If there’s not enough work to go around, your employees could be idle or wasting time, which also costs you unnecessary money. However, being overstaffed also creates opportunity. If you’re able to increase business or use excess staff to increase efficiency, take advantage of the situation.

17) What are the employees’ skill set?

Like I said, you want to have the right people in the right seats on the bus. Before you take over the business, get to know your soon-to-be employees. Get a feel for their interests and take inventory of their skill sets. You may find you can increase efficiency and employee satisfaction by creating opportunities or reorganizing, so employees are in positions that are best suited for them.

18) What are the employees plans after the sale? Do they intend to stay? Go?

Don’t assume employees will stay. Like customers, some employees stay specifically for the relationship they’ve developed with the owner. Failing to account for employees who plan to jump ship can leave gaps in your employment needs. On the other hand, you may find as you’re getting to know your soon-to-be employees, that you have individuals who aspire to more than they’d been given opportunities for under the old leaders.

19) Do your employees’ contracts include a non-compete clause?

I talk about customer service often. It’s definitely something business owners should strive to cultivate in their employees. It’s understandable that employees will develop their own loyal customer base when providing superb customer service. If that employee is planning to leave the company after the transition, there’s a chance his/her customers will follow. So ask if the employees have a non-compete clause. The last thing you want are the previous employees jumping ship and taking all the customers with them.

20) What are the terms of the employees contract?

Smiling businesswomanWhen the business transfer is complete, you’ll also be obligated to meet the terms and condition of the employee contract. These contracts may include benefits packages, accrued leave, wages, work hours, etc. Keep in mind, an employee contract doesn’t have to be written for you, as the new employer, to be obligated to them.

21) Do you have an employee manual?

Employee manuals often get neglected with small businesses. It doesn’t have to be the case with yours. If a company manual is available, you’ll want to review it. If necessary, you might even consider updating it. If there is no company manual, it’s a good idea to have one developed prior to taking ownership, as you’ll want to introduce it earlier on.

Still more to come…

That’s enough for today. The next article, we’ll wrap things up with this series and end by addressing questions related to the management, legal issues, and the seller.

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By | 2017-01-13T19:09:31+00:00 June 24th, 2016|Business Planning, Buying & Selling|0 Comments

About the Author:

Renee Townsend is a Certified Professional Coach and Business Consultant, who helps women start, grow, and run successful companies. She has a special knack for finding money for startup businesses and helping entrepreneurs get funded.

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