If you're thinking about purchasing an existing company, it's important to prepare a list of questions to ask when buying a business before you make a decision.
Questions to Ask When Buying a Business
Investing in a business is a big decision, and it's certainly one that you shouldn't make without having all the relevant facts. Use the following questions to draw up a list of important questions to ask when buying a business.
Questions to Ask Yourself
Are You Prepared for Entrepreneurship?
Owning a business takes a great deal of work and dedication. Before committing to buying a business, it's important to make sure you are prepared to be a business owner. If you think that owning a business is a quick way to make a lot of money without putting forth much effort, it's a safe bet that you are not ready to become an entrepreneur. Successful entrepreneurs know that running a business takes hard work, dedication, and commitment. They also know that it may take a while to start operating at a profit and are prepared to function with little or no income for a period of time after beginning operations.
Is This the Right Business for Me?
If you are ready for entrepreneurship, it's also important to consider whether or not the business you are thinking about purchasing is right for you. When you own a business, you will spend most of your waking hours thinking about and working on it. Make sure the company you think about buying is likely to hold your attention and interest for years to come.
Questions to Ask the Seller
Why Are You Selling the Business?
There are many different reasons an individual might want to sell a business. Don't make assumptions about why the business you are interested in purchasing is for sale. Asking why an entrepreneur wants to sell is one of the most important questions to ask when buying a business. The current owner may or may not be truthful about his or her reasons for selling, but if you listen carefully, the answer to your question may provide you with very useful information.
May I Review the Company's Recent Financial Statements?
Before purchasing a business, you should insist on seeing statements that have been officially reviewed or audited by a certified public accountant. If the company does not have reviewed statements, it is in your best interest to insist that the current owner have these statements prepared for you to review.
It is perfectly reasonable for you to require reviewed financial documents. If you, or any other prospective buyer, approaches a bank to request a loan to purchase the company, the bank will insist on seeing reviewed statements. Therefore, having reviewed or audited financials prepared is an expected expense when trying to sell a business.
Unless you are a financial expert or accountant yourself, it's in your best interest to have a CPA with expertise in business valuation go over the company's statements carefully. An independent financial professional with valuation experience can provide you with valuable information to help make an informed decision about whether or not purchasing the business is a wise investment.
May I See the Company's Tax Forms From the Last Three Years?
Before purchasing an existing company, it's vital to review the organization's tax filings from the past three years. It's in your best interest to have the same accountant who is reviewing the financial statements to look over the tax documents. This will enable the accountant, and you, to identify any inconsistencies between the books and the tax filings and help to verify the financial worth of the company.
Are the Current Employees Aware the Business is for Sale?
When purchasing an existing business, it's important to consider the individuals currently working for the company. Find out if they know whether or not the current owner is trying to sell the organization. If so, see if you can get a sense from the owner about how the employees are likely to react in the event of the sale. Prior to extending a firm offer to purchase, you may even want to interview some of the current staff members to get a senses of how they feel about a change of ownership.
Making Progress Towards Business Ownership
When researching whether or not to purchase a particular business, it's important to consider all the relevant facts from an objective perspective. Asking the right questions and listening to the answers is the only way you can decide if owning a particular business might be right for you.
