Questions to Ask before You Buy a Business
If you’ve made it through the part 1 and part 2, congratulations! This article concludes the Questions to Ask Before You Buy a Business series. Today, we’ll address management, legal, and questions pertaining to the seller specifically.
Management & Transition
22) What are and have been your biggest challenges with this business?
Oftentimes, success comes down to preparedness. The business is going to have challenges. All businesses do. Knowing what those challenges are before you hop on board can help you overcome them. Additionally, history is important. The same challenges the seller had starting up may end up being your challenges also. You may be acquiring an established business, but you will be the new owner. Take time to learn from the seller’s past experiences.
23) How are your business procedures documented?
Like employee manuals mentioned in the the last article, company manuals are equally or even more important. When the seller is out of the picture, those company manuals may your main tools as you work through being the new owner of an old company. If the company hasn’t documented their business procedures, don’t be afraid to ask for training, which should be included as part of the transfer.
24) What skills or qualities do you think we’ll need to run the business successfully?
The seller has been there, done that. It’s likely, particularly if the seller was hands on, that s/he knows his customers and vendors well. S/he knows what’s worked well and what hasn’t. So, take advantage of the knowledge and expertise about to walk out the door.
25) Will the website and other social media accounts be included with the transfer of ownership?
These days, a strong online presence is invaluable. As such, you’ll want to obtain administrative access to any business social media accounts. You’ll also want to have the website domain transferred to you, as well as the website move to your host.
26) Will the service numbers be included with the transfer of ownership?
Not obtaining the number listed for the current business can have an abundance of negative ramifications. It takes time for business numbers to update online, and even longer for items like phonebooks. Repeat customers may have the business number jotted down and not even bother looking up the business number.
27) What type of marketing and advertising do you use?
If the marketing plan the business is working, you may want to stick with it. Even if you continue along the same trend, you’ll want to know what they’re doing so you can evaluate it for strengths and weaknesses. On the other hand, if the seller is throwing money at marketing but realizing very little return on the investment, you’ll to know that also. In the end, knowing what the business is doing well help can help you develop a plan that’s more effective.
28) How is your company different from the competitors?
This is a big one. I love going to home shows. Without fail, I get at least one presenter who tells me his products or services are no different from Joe Blow two booths down. It makes me wonder why the guy even bothered coming to the home show. If the company you’re thinking about buying has nothing unique to offer, no competitive advantage, there may be very little reason for customers to return with repeat business. Understanding what makes the company you’re thinking of purchasing stand out is imperative to your marketing plan.
29) What is the business structure?
The structure of the business plays an important role in the businesses finances, as well as legal implications. If the business is a sole proprietorship or doing business as, debts and liabilities typically stay with the seller. However, if the business is an LLC or Corporation, you have other considerations, as the seller can include the debts and liabilities in the transfer, which brings me to the next question.
30) Are you selling just the assets or also the business entity?
If you’re purchasing the entity (LLC or Corporation), rather than just the assets, you purchase the debt, liabilities, and other issues that come with the company. Work through the details with the seller so you know exactly what you’re purchasing. And do your research. You’ll want to go through the UCC, do liens searches (Federal, State, and County), and look into tax records (Federal and State).
31) Do you or your company have any past or pending lawsuits?
Along those lines, you’ll want to know if you’re walking into any legal issues. Here, you’ll be able to search public records for a lot of the information. However, also find out if there are any lawsuits waiting in the shadows. Keep in mind, the seller’s intent is to sell, so may not be forthcoming. As such, you’ll want to make sure you get his/her declarations in writing, so they don’t creep up to haunt you later.
32) What licenses will we need to continue to operate the business?
Sad is the new owner who doesn’t have the proper licenses in place. I encourage you to do your own research. However, also verify with the owner the licenses you’ll need to continue to operate the business. Failure to obtain the licenses you need can result in your business being shut down, hefty fines, or even jail time.
33) Will the seller be willing to sign a non-compete clause?
This goes back to customer loyalty. It’s all well and good the seller is willing to let you purchase the business. However, if he’s continuing to open up a new shop doing the same thing, his/her customers might follow, turning your established company into just a name with no business. A non-compete clause can offer you some protection against that situation.
34) How long have you had the business for sale?
Knowing how long the business has been for sale helps in several ways. 1) It may provide you with some negotiating leverage. A business that’s not moving, might mean the seller is willing to come down on price to get it off his or her hands. 2) A business that’s been on the market for awhile might also indicate there are some problems, keeping it from selling. You may want to investigate why a business has been on the market for an extended period of time. 3) If the market is hot and the business was posted recently or the business seems like an attractive investment, it might urge you to move quickly before someone else pounces on it. Still, don’t let urgency prevent you from doing proper research.
35) If you don’t sell, what are your contingency plans?
This is another leverage question. Depending on what the seller’s plans are may help you gauge their desperation to get the business off his/her hands. For instance, many sellers would rather receive some additional return on their investment for all the hard work put into a business than simply close down their business.
36) Are you entertaining any other offers?
Yet more possible leverage. If there are no offers, particularly if the business has been on the market for some time, you might have room to negotiate. The seller may have even received a lowball offer, which might indicate the business isn’t worth nearly as much as the asking price or even shake his/her confidence in the asking price. On the other hand, if you’re competing against multiple bidders, you’ll need to determine how much you want the business and even your bottom line.
As I mentioned in the first post, this list isn’t all inclusive. There are hundreds of questions you might ask a seller before you take the plunge. My advice is to not be afraid to ask the tough questions. Because once the transfer is said and done, you’ll find yourself stuck with the answers to all your unasked questions. And you might not be happy about what you learn.
What other questions would you ask before buying a business?