When considering the purchase of an existing business, asking the right questions is crucial. It is here that you will find pertinent information to the current health of the business, as well as its future potential. So what should you ask?
First, delve into the financials. Ask questions such as, “Can I see your financial reports for the last 3 years?” or “What has been your sales percentage increase and profit each year?” Having this information will allow you to project future profits. If a current business owner refuses to provide financial information, it can be a red flag that there are some issues below the surface.
Second, find out how much the current owner believes in the business by asking them to keep some skin in the game. This can be accomplished by asking if they will finance a part of the purchase price. It is estimated that 80% of small business purchases involve some form of seller financing. Not only will these loan terms likely be far better than a bank, but by doing so, a seller indicates that he believes the business will succeed.
Last, ask the seller to stick with the business for a while, even after your purchase is complete. This can help make the transition smoother as well as give the new owner greater insight into what worked and what didn’t. If a seller refuses to put another second of his own time into the business it could also be a warning sign that something is not quite right.
A business attorney can assist in gathering information by creating a list of questions to ask when meeting with a seller. Sometimes important information is not divulged up front and requires some expert digging.