Robin Lamb | Published 30 January 2023 | Updated 2 February 2023
Buying a business can be a great way to pivot in your career. However, to ensure that you make the right decision, you must ask yourself some fundamental questions before taking the plunge and buying a business.
What is the business's current financial condition?
An accurate picture of the company's financial situation is a must for prospective buyers. You should ask for the company's profit and loss statement to get an up-to-date view of the revenue levels and operating costs. You should also find out the value of any assets the business has and investigate business debts to third parties. Doing these checks will make it less likely that any surprises are lurking in the shadows.
How healthy is the business customer base?
Take some time to look at the existing customer base. Ask questions such as who the customers are, how much money each customer spends and how often, their payment terms, and how often they purchase from the business. Doing this will give you an understanding of which customers will likely stick around after a sale and provide consistent revenue.
How involved is the current owner in day-to-day operations?
How involved the current owner is in day-to-day operations will tell you about their business experience. This will allow you to consider the amount of training that may be needed should you decide to purchase the business.
For example, ask:
- How much time do they spend on each role?
- Who do they usually deal with?
- How familiar are they with operations such as taking orders, coordinating deliveries, managing payroll and dealing with customer enquiries?
Which physical and intellectual assets are included or excluded in the sale?
When buying a business, knowing exactly what assets you'll be getting with it is vital. These could range from physical assets such as equipment and stock to intangible ones such as copyrights, trademarks and patents. Then, determine whether the sale of these assets must be done separately or included within the purchase price so that you can select the actual value of the business before making any commitments.
Why is the seller looking to sell their business?
Knowing why the seller is looking to get out of their business can significantly impact your new enterprise's future. Understanding what could motivate the sale and whether any potential issues could come back to bite you after purchasing it is essential. Identifying certain factors, like health problems or competitive pressures in the marketplace, can also help you assess whether it's worth taking on potential risks associated with buying a troubled business.