There are many key issues to take into consideration before you buy a business, and the seller can sometimes be the best source of information if you open up channels of communication. However, it's important to ensure you ask the right questions to get the answers you'll need to make an informed decision.
We've put together a list of the top ten questions you should ask a seller before you consider making an offer.
1. Why are you selling?
This is one of the most important questions you will ask as it could reflect the profitability of the business or highlight reluctance on the part of the seller if they refuse to answer. However, it could also provide reassurance if the sale was prompted by retirement, relocation, or other factors unrelated to the business.
2. Can I see certified financial statements?
Businesses are usually valued based on their cashflow, so gaining access to certified financial information will give you a better idea of whether a business has been accurately valued. Additionally, your bank will want to view this information before they lend money, so it's important that the seller is open.
3. Can I see the company's tax returns?
It's normal for a buyer to want to view tax returns from the past three years, and the seller should expect to have to provide this information. However, it is possible that they will provide their own tax returns rather than those of the business, so ensure you receive the information you need.
4. Can I see copies of documents related to debts?
Even if you've seen the company's financial information, you will not have a clear picture of its financial status until you have seen documents related to outstanding debts. Additionally, information that demonstrates late payments could suggest the company is struggling to remain financially stable, so it is also worth viewing.
5. Will the seller be available to help for a transition period?
It's not always possible to have the seller around to help with the smooth transition of the business after its sale. However, if they can be available, it could help to prevent any issues from arising while you learn about your new company. If this is an important factor for you, make sure the seller is aware of that as soon as possible.
6. Are employees aware of the sale?
It's possible that the seller will not want employees to be made aware of the sale until a specified time. While this is quite normal, it will have implications for you as the new owner, and could even mean you are left to inform employees of changes in ownership. Make sure you're aware of their position before you make an offer.
7. Has there been a high turnover of staff?
If there has been, it's important to ask why. There are a number of issues that could underlie a high staff turnover, including the sustainability of the business on the current wages it pays or the amount of work employees are expected to do. These issues could need addressing when you take over from the current owner.
8. Does the company have a close relationship with its customers?
If the company does not have a good relationship with its customers it could cause you problems in the future. You may be comfortable taking on such a business, but ensure you are prepared for the extra work this will entail.
9. What are working conditions like?
Ensure you are comfortable with the employees' working conditions. Hazards and safety concerns could cause problems with safety legislation in the future if not carefully managed, so it's important you are prepared to take this additional work on.
10. What is the state of the existing fixed assets?
Find out how well employees maintain company equipment and machinery. If these assets are not properly maintained, it could be very costly in the long term.
Business-buying is an exciting and stressful time, so make it easy on yourself by having all the answers before you make an offer to a seller and there's no better way to do that than by asking the right questions in the first place.