5 Questions to Ask When Buying a Business

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5 Questions to Ask When Buying a Business

If you’re hoping to buy a business, it’s important that you know what kind of business you’re getting yourself into. Before you reach a final decision on buying a business, you should ask the seller a number of questions to make sure it’s right for you.

Of course, at some point in the buying process you will no doubt require the help of a professional to check the figures. However, before then you are free to undertake your own research to get a feel for the business you’re hoping to buy.

 

Why are you selling your business?

 When it comes to buying a business, find out as much as you can from the seller before putting in an offer. You might want to understand the reason why the seller is selling; it could equip you with some insightful information about the business itself.

Most likely, the seller is simply moving on to a new venture or even retirement. However, there are instances where they might be selling to avoid some upcoming competition or to get out of a down turning trade. They may or may not be forthcoming in telling you this information, but if they do then it can provide you with some helpful insight as to what you’re buying.

Even if there is some upcoming competition, you might welcome it and can even ask the seller the best way to tackle it, given their past experiences.

 

How did you arrive at the sale price?

When buying a business, it all really comes down to whether the price is right. You will likely carry out your own valuation of the business before buying, but before you reach that stage, you only really have the seller’s asking price to go off.

Take some time to understand the seller’s calculations and which valuation method they used. The most popular methods including asset-based or multiplier methods, and can often give an accurate idea.

It’s helpful for your own peace of mind to understand the sale price, and whether you’re prepared to pay it after learning more about the nature of the company itself.

 

Who are your important customers and suppliers?

Buying a business includes finding out as much as you can about the inner workings. This includes key customers and suppliers, which can help you gauge a picture of the business’ current standings and relationships within the industry.

This information can also help to make sure you understand how dependent the business is on certain contracts or relationships. If a key supplier was to withdraw, would the business suffer, or are there other relationships to fall back on?

Asking this type of question when buying a business can give you some sneaky insights into the success of the business in the wider market.

 

How many hours a week did you work?

You should decide for yourself why you want to buy a business, and how involved you want to be. Do you just want to be the name above the door, or do you want to be very hands-on?

When you have the chance to ask the seller some questions, make sure you ask how many hours they worked. This could be a telling factor in how much of your time the business will take up, and whether it’s a path you want to go down.

 

What are the biggest challenges?

It’s crucial to gather as much information as you can before buying a business, even if you’ve worked in the industry before. No business is without its challenges, and by understanding them early on you can make sure you’re prepared to take them on.

If the business owner isn’t prepared to reveal the challenges, you may want to think again before buying. Withholding key information can be a red flag in some cases.


On the other hand, the seller may offer some challenges that don’t seem much of a challenge to you. This could instil some confidence that you have picked a viable business to buy; one that you could thrive in.




Posted on July 12, 2019 | buy a business, buying a business, advice, biztips, business tips, what to ask, how to buy a business, how to run a business

By bizdaq

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