10 Questions to Ask Before Buying a Business
There are many crucial details that a person interested in buying a business should know. To put things into perspective, Jane Porter, a writer, and contributor for Entrepreneur magazine interviewed Andy Cagnetta, the CEO and President of Transworld Business Advisors and asked him to describe the 10 questions to ask before buying a business.
He starts off by suggesting that you should ask the seller why they are selling; such questions give important insight on the current conditions of the business and what incentivized the seller to put it up for sale. Also, to prevent possible risks, he encourages you to understand what the biggest challenges were in the business, whether that was money, inventory or other. As his third most important question, he encourages you to ask the seller if they owe any money, even if they prefer not to discuss financial matters until later in the selling process.
Another important tip is to understand what role the seller has in the day-to-day operation of the business because “that way the buyer understands what functions need to be replaced after the seller exits the business.” Ask whether the business has growth potential, “find out if they have explored untapped markets or added more products or services to their business model.” He advises that you ask what records the seller will be able to provide to you. He suggests that you use questions like, “Does the business have any debt or pending litigation?” just to avoid unwanted surprises.
Sometimes it is especially helpful to ask how the seller arrived to the asking price because it is good to know if they felt they’ve invested in the business or they have special needs for a minimum price to sell. Cagnetta says that it is imperative to know any standard operating procedures that are in place. “Many times, in family businesses, many operating procedures have been handed down or developed in ways that have gone undocumented. Some businesses’ success is entirely dependent on the owners, and he advises you to make sure to learn how the business can be upheld without the previous owner’s assistance, in other words, how will their absence impact the company.
Finally, make sure to step in the seller’s shoes and ask them what they would ask you if the roles were reversed. He recommends all of these questions in order to cover all of the aspects of the business so you can have a clear understanding of the current state of the business and if you would find it in your best interest to follow through with the buying process.
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