3 Questions to Ask Before Buying a Business

There are three questions you must ask  when buying a business.  These may seem rudimentary, but the buying process can get so complex that these fundamentals get lost along the way.  It’s been said, keep the main thing- the main thing,” and never is that more true than in acquisition.  If you don’t want to find yourself in a situation where you, “wish I’d know that sooner,” then be sure you ask these three question upfront.  Getting clear answers upfront will save you time, money and grief down the road.

1. What Is Included in the Sale?

It’s possible to get so focused on financing, contracts, and other aspects of the process that you overlook key details like what you’re actually buying. Don’t just assume that the sale includes key assets like real estate, inventory, accounts receivable or machinery. If there is intellectual property, like patents, copyrights, formulations, or software, you’ll want to know they are included.  If they are not included in the sale, you’ll want to know why. After all, the success of the business could depend on them. These details must be carefully outlined and documented. You need to know exactly what you are and are not getting when you buy the business. 

2. How Can You Grow the Business?

Before you buy a business, it’s a good idea to ask yourself about its potential for growth. Many sellers are prepared to provide you with ideas and strategies. If future growth for the business is limited, this is something you should consider in advance. Also, it is important to think about the amount of working capital you’ll need, not only to run the business but also to make any necessary changes. 

3. What is the Staffing Situation?

Ask yourself and the owner, how dependent the business is on them for its continued success. If and when the current owner leaves, how much will that impact operations? Some business models lend themselves readily to a transition in ownership.  Some do not.  The type of business, client base and  management style of the current owner can have a tremendous impact on the transition’s success.  Having loyal employees, managers, and workflows in place will help ensure your success.  If the businesses is highly dependent on customer relationships, you should outline a training and  transition period that realistically accounts for that.  It is essential that your expectations and those of the seller are reasonable. 

Many variables must be taken into consideration before you buy a business.  

At Business Brokers & Consultants, we will outline these details with the seller and disclose them to you before you sign a contingent Purchase Agreement.  Any important issues that cannot be defined at that time will become contingencies to the Purchase Agreement.  That means the sale can only close if the contingency is satisfied or waived.  This typically happens  during the due diligence process.  If it does not, the Purchase Agreement becomes voidable.

Having an experienced broker at your side will keep the process on track, but it is still essential that you ask the right questions and speak up whenever you need clarification. When a business is properly vetted, you’ll not only be satisfied, you’ll also be more successful. 

Otis Florence, Business Brokers & Consultants

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