Eight questions to ask a business owner before agreeing to buy

There are almost countless issues to consider before you make the final decision to purchase a business, but it's important to remember the role the seller can play in helping you make up your mind. While anyone who is selling a business will want to promote their company as best as they can, they can also act as a source of valuable information if you take the time to ask the right questions.

We have put together a list of eight questions you should ask any company owner before you agree to buy their business.

1. Why is your business up for sale?

This may seem like a basic question but it is an important part of understanding the financial status of the business you are considering. In some cases, business owners will be reluctant to answer and it is important that this is taken seriously as it could be that the company is facing financial hardship. However, if they are able to reassure you that the sale is due to personal factors such as retirement, changes in personal circumstances or other unrelated issues, you are likely to feel more confident putting in an offer.

2. Can you show me the company's financial statements?

Businesses are often valued based on their financial status, so it is important that you are able to access certified financial information so you can confirm the company's worth. If you are borrowing money to finance the purchase, it is also possible that your lender will want to view this information before they send you the funds you require.

3. Can I view your latest tax documents?

It is not unreasonable for a buyer to request to view a company's tax returns, and so it should ring alarm bells if the seller is unable to provide this information. Make sure they are able to show you the tax documents related to the business itself rather than their personal documents, which are unlikely to reflect the current financial state of the company.

4. Can you show me evidence of any paid or unpaid debts?

It is not unusual for businesses to have debts, but it is important as a prospective buyer that you are aware of any debts that remain unpaid and will become your responsibility. It is also beneficial to view information relating to late payments, which will give you a clearer idea of the financial stability of the company.

5. Will you be available to aid with the transition period?

Some sellers are unable or unwilling to provide help once the sale is complete, but if you ask for help in advance you may be pleasantly surprised. While not crucial, having the help of the previous owner while you adjust to running a new business can help prevent teething problems and ensure a smooth start.

6. Are your employees aware of the sale?

Not all business owners will want to inform their employees of a potential sale until it is complete. While this is perfectly normal, it can have an impact on the new owner by leaving you with the responsibility of informing them once the company has changed hands. Make sure you are aware of your responsibilities before you sign on the dotted line.

7. Do you have a high staff turnover?

If staff change regularly, it is important to ask why. There are many issues that could encourage employees to leave a company, but many will remain hidden until you have a greater involvement in the firm. Try to discover whether there are issues that need addressing before you agree to a sale.

8. Do you have a good relationship with your customers?

A poor relationship with customers should ring alarm bells as this could cause issues in the future if you are looking to expand. If you are willing to take on such a company, prepare to do the work required to boost your customer base.

The most important thing to remember when purchasing a new business is to keep the lines of communication open. By building a relationship with the owner of your prospective purchase, you will gain access to valuable information that could be the difference between financial ruin and hitting the ground running with a burgeoning business.

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