If you've considered buying a business you probably know you need to take care to ask the right questions, not only to demonstrate your interest but also to ensure you get a good deal. But while many of these will be sorted by your accountant or financial advisor, you will be responsible for asking those that are slightly more generic, but no less important.
We've put together a list of 10 questions you should be asking any business owners before you commit to taking on their company.
1. Why are you selling?
Retirement, health issues and new projects are all common reasons, but make sure you investigate. If they're concerned about new competition or a downturn in the industry, make sure you ask some follow-up questions to ensure you're not trapped in a failing business.
2. How did you reach your asking price?
An asking price should not simply be plucked from thin air, and while you're likely to perform your own valuation process if you move forward, it's important to ensure that they have used an acceptable valuation method of their own. Any dishonesty from them or failure to be diligent at this stage should also ring alarm bells.
3. What are the biggest challenges facing your business at the moment?
Any challenges facing their business or the industry could soon be your challenges. You may have already done some research to know of the hurdles they're facing, but their willingness to discuss these may signal a trustworthy seller.
4. What would be your ideal outcome?
It's possible that your seller simply needs to move on and wants to achieve the best price, but they may also have other outcomes in mind. Perhaps they want to see the business grow or for their employees to remain in the company. Maybe they want to see someone with experience take it on. Establish this now to ensure you're both on the same page.
5. What were your plans for growth?
If they have none it could be that they feel there is no where to go with the company. However, if they list a number of potential growth opportunities you should also find out why these have not been pursued yet by the current owner.
6. Who are your key customers and suppliers?
You should establish the current customer base to find out about the firm's reputation and its potential for future growth. Additionally, their suppliers should be reviewed to establish their relationship/contracts with them; if you take the business on you may have to continue this relationship, at least in the short term.
7. Would you consider staying on for a transition period?
When a business changes hands it can be difficult for all parties involved. Some owners will want a clean deal where they're able to walk away immediately. However, some will be willing to consider a transition period where they help you and the staff/suppliers adjust to the challenges of new ownership.
8. Would you consider a non-competition clause?
The last thing you want when you buy a new business is to have the experienced former owner set up a competitive company and steal your customers. A non-competition clause can help prevent this from taking place within a certain period of time and/or within a specific location.
9. How much are you currently paying yourself?
This may feel like a personal question but it's important that you find out how much you may earn. If a business seems successful but it's unable to pay its owner a wage, you may feel it isn't right for you. However, if there is great growth potential it might be worth considering low pay while you apply your ideas.
10. How many hours do you work?
Running a business can sometimes mean working excessive hours, particularly in the first year of ownership. However, if this sort of set up isn't right for you then you should find out early on how many hours you would need to put in to keep the business ticking over at its current level. If it's more time than you're willing to invest, you may need to consider another type of business.