Small Business
Jun 7, 2024

30 Best Questions to Ask When Buying a Business

Are you planning to invest your money by buying off an existing business?

Before you join the growing statistics of people who venture out to buy a small business but drop off along the way, there are questions you must first ask yourself and the previous owner.

This article provides a detailed list of the most crucial questions to ask when buying a business and why you have to ask those questions.

Why You Should Ask Questions Before Buying a Business

It may seem like a great idea to buy off an existing company from a business owner, but did you know that 90% of buyers who start out looking to buy a business eventually abandon the transaction?

When researchers tried to find out why this happens, the number one reason was that potential business buyers are usually unprepared!

As first-time buyers, they have never gone through the business-buying process and so are unfamiliar with how it works, and the right questions to ask sellers, despite usually knowing how to run business operations.

So, if you’re interested in buying a new business, thoroughly educate yourself before you erroneously inherit a money pit from the previous business owner.

Begin by asking yourself the questions listed below, and then move on to the questions you have to ask the owner.

3 Questions to Ask When Buying a Business

To buy, or not to buy?

The following questions will help set you on the right path before approaching the current owner.

1. Why Do I Want to Buy This Business?

Having genuine and relevant answers to this question is a good place to begin if you’re interested in buying a business.

If you can’t find a solid answer to the question, then perhaps it may be a red flag telling you to hold your horses or seek better opportunities.

Now, to eliminate any bias you may have about buying the business, keep any positive answers you have aside and face the negative things you don’t like about the business.

Can you guarantee business success after listing what you don’t like about it?

Do you foresee it being difficult to attract profitable clients?

Are you ready to handle the day-to-day operations required to keep the small business on its feet?

Be truthful with your answers. If it seems like a negative buy, it may be wise to not move forward.

2. What Are My Plans to Make the Business Successful?

Do you have any relevant and immediate strengths, industry expertise, or skills that will increase the success chances of the business?

As a new owner of the business, what will you do differently to improve the business’s finances?

Do you understand how to accurately interpret financial records like cash flow statements, balance sheets, income statements, or market trends and other legal obligations you may be required to fulfill?

If not, what are your plans to handle such business aspects effectively?

How do you plan to improve projected sales, established systems, employee work processes, marketing, and advertising?

3. How Will I Fund the Business Acquisition Process?

How will you buy off the business from the current business owner? What are your financing options?

Does the purchase price fit within your budget?

Bear in mind that not all businesses are as financially stable as they may look on the outside.

Sometimes, they may come with financial sinkholes like outstanding debt, pending lawsuits, huge tax payments, or even a dwindling working capital.

Are you ready to take on such liabilities?

While this is not to scare you off, it’s essential to face the facts by asking the tough financial questions before you move forward with buying a business.

Even if you have enough resources to pay the down payment of the selling price, it’s prudent to have a financial advisor or an independent auditor evaluate your finances and thoroughly scrutinize the business’s financials that you have access to before buying.

27 Questions to Ask the Business Owner When Buying a Business

If you asked yourself the 3 questions above and are satisfied with your answers, then you can proceed to this stage.

Now, ask yourself these 27 crucial business questions before buying a business you may not be ready for.

Company History and Culture

1. How Long Have You Owned This Business?

Longevity is one of the tell-tale signs that a business may be worth buying.

If the current owner has had the business for years, then it may be a lucrative purchase that continues to do well financially when it becomes your own business.

2. Why Are You Selling Off The Business?

Knowing why a business owner is selling off the company they worked so hard to build can give you a clue as to whether or not you should buy it.

It’s an easy enough question to answer, supposing that the owner is not dishonest — but you can’t make that assumption.

That’s why doing your research can help unearth the small business problems that may be forcing them to sell.

3. How Many Employees Are on the Payroll?

Evaluating how many key employees the business has will help you decide if the business will need more hands or if there’s adequate employee expertise to keep the business afloat.

You can also ask how long employees have been with the business, what duties or roles they fill, and if the business currently provides employee benefits.

4. What Is Your Company Culture?

Understanding the company’s culture gives you an idea of whether the business is a good fit for you.

Does it align with your values? How are employees treated? How does the company view customers and clients?

How does the company reward productivity and performance?

Are there unethical practices going on in the company? Now’s the time to find out to avoid surprises.

5. Who Is the Current Owner?

Sometimes, the liaison between the company and the intending buyer may not be the sole owner of the company.

A company may be jointly owned by two or more people usually known as silent partners.

Uncovering the ownership of the company will help to avoid problems when it’s time to hand it over.

6. Are There Company Investors?

Before you become the new owner, certify whether or not the business has any current investors.

How much and how often do they invest in the business? Is the entire company for sale or only a portion of it? Does the company sell shares?

Financial Assets and Liabilities

7. What Is the Business’s Financial Health?

Before purchasing, find out how well the business is doing in its finances. Does the company have substantial working capital?

At the last business valuation done by the company, what did the reports show?

With the help of an accountant, evaluate the business’s profit margin, net income, net worth, and assets to see how much it is worth.

8. Can I See Financial Documents and Tax Reports?

Request their year-end statements to see how well the business’s finances are running.

With these financial statements, you can uncover hidden issues with the business finances.

Going through their tax returns of up to three years can also tell if they have been dishonest about the business’s finances.

If a business that’s up for sale withholds these documents from you, that’s a red flag.

9. What Financial Liabilities Are There?

Does the company have debts? What steps are in place to pay it off?

Are you expected to inherit the financial liabilities? What percentage of the debt has been paid off?

How overdue is the debt? Are there any lines on the company’s accounts?

What’s their relationship with their bank like?

10. Does the Company Own Physical Assets or Intellectual Property?

Get a better idea of how much the company is worth in assets when you do the business valuation.

Find out if the company possesses properties physically, digitally, or intellectually.

How much are they worth? Verify that they are truly business assets and not liabilities cloned as assets.

11. What Is the Business’s Strength in the Market?

How does the market view the business on the market? Is it a strong competitor?

What is its social standing online and in the local and international spaces?

What do business reviews, ratings, and customer feedback say?

Does the business frequently receive licenses, permits, invites, and certifications from major industry organizations?

Asking about all of these will help you gain access to the nitty-gritty of the company’s social value.

Legal Matters

12. Are There Any Pending Lawsuits Against the Business?

If the company has an ongoing lawsuit or is at legal loggerheads with clients, suppliers, or similar businesses, it is an indication of the company’s poor reputation and values.

Legal suits also indicate impending liabilities in the company’s future.

13. What Contracts Is the Company Currently Bound By?

Many businesses enter into various types of contracts with different categories of people, from suppliers to employees, and even clients.

Find out which of those contracts are still in effect and the policies that bind the contract so that you don’t break any upon purchasing the business.

14. Are There Any Industry or Government Regulations That Govern the Business?

Government and industry regulations can significantly impact a business’s decisions, so it’s essential to find out more about the ones in place or incoming before the transition period.

For the ones already in effect, how do they affect the business and its finances?

And for the pending regulatory changes, are they something you’re willing to adhere to?

Can they potentially impact the business’s finances?

Market, Competition, and Marketing

15. What Makes the Business Stand Out?

Knowing how well the business does in the industry playfield is a good indicator of whether it’s a good purchase.

As a potential buyer, evaluate how easy it will be to sell the brand’s product or service to your first customer.

Based on the company’s unique selling point, is it an easy sell? Do they have any competitive advantage?

16. Who Are Your Biggest Competitors?

Knowing who your potential competitors are can help you identify if it’s a business challenge you want to take on.

What share of the market does the business currently hold?

Will a few updates to the management team and employee processes give you a better edge over the competition, or will you need a complete business overhaul to tackle them?

17. Who Is Your Target Market?

Does the business have a viable target market?

Is the market growing and thriving? Is the demand for the company’s products and services increasing, dwindling, or at a standstill?

Is the business dependent on only a few key customers, and do those customers plan to stay after the ownership transition?

18. What’s Your Current Sales and Marketing Strategy?

Ask to find out how the company currently markets itself and sells its products.

What are the company’s most effective sales and marketing channels? What are the least effective ones?

Are there social media accounts for the company? Who handles them?

What strategy does the business use to boost sales?

Asking Price and Purchasing Process

19. What’s Your Asking Price?

Now that you’ve determined that the business is worth buying, it’s due diligence to ask the business owner what their asking price is.

This figure will help you estimate whether or not you want to negotiate a better deal or if the price is higher than you budgeted.

A good range for a business price should be pegged at three times the annual profits of the company, nevertheless, you can ask how the asking price of the transaction was calculated.

20. What’s Included in the Sale?

What will the seller’s contract include when you pay for the business?

What are they parting with and what aspects of the business will they retain?

Will the company’s existing vendors, customers, employees, property, etc., be transferred to the new owners?

Ask for a comprehensive inventory of all that will be transferred to you after the purchase.

21. How Negotiable Is the Final Price?

Business sales may involve fixed or flexible prices.

Your overall goal should be to get the best deal once you’ve gotten the business appraised and are ready to move forward with the purchase.

Ask if the company is willing to allow you to negotiate their offer or if the price given is final.

22. Are You Open to Seller Financing?

If you’re not qualified to get a bank loan and don’t have enough money to make an all-cash deal, you can ask if the seller is willing to finance the sale.

This means you will borrow some money from the seller to purchase the business and repay them at an agreed date.  

23. Are You Willing to Assist During the Transition?

Sometimes the new owner may need help during the transition to ensure a smooth handing over of the business and its assets.

Ask if the current owner will be willing to stick around for a while to complete the diligence process.

It will help ease employees and customers into working with the new management.

Get this agreement in writing if they consent to it.

Potentials for Future Growth

24. What Is the Goodwill Value of the Business?

Goodwill value is the intangible assets that a business has accrued over the years such as a good reputation, customer relationships, employee loyalty, relationships with suppliers, etc.

If the goodwill generated over the years is strong and credible, the business may have a good chance of survival after purchase.

25. Is There a Financial Business Plan?

Getting the financial business plan helps you understand the business’s financial growth trajectory after the purchase.

It also reveals if you’re taking on a risky challenge, if the business has viable growth potential, and if the business’s finances have been managed appropriately before your purchase.

If there is a need for adjustments, the plan will highlight how to get started too.

26. How Efficient Is the Management Team?

Every business has people in control of its resources and its workforce.

Find out whether the individuals in the managerial roles have been handling business adequately or if they need to be changed.

Also, evaluate them to see if they fit your management style and if they’ll be willing to implement your business goals and visions.

27. What Is the Customer-Business, and Business-Employee Relationship?

The above-mentioned relationships are crucial to the growth and sustainability of any business.

Find out how well the company treats its employees, and how customers perceive the company.

What is the churn and acquisition rates for customers and employees over the past few years?

This can give you a clue.

Wrap Up

The challenge of buying a business can be better managed when the buyer is well-informed — thus, the need to ask as many questions as possible to determine the viability of the purchase and the business’s chances of success in the future.

As an intending buyer, your questions should be free of bias, ranging from financial to legal, operational, and growth-related company matters.

Clarify all doubts and inconsistencies by leveraging the services of professionals to guide you at every step.

The questions listed above will direct you as you begin your journey to gather all the business information you’ll need to make your decision.