Top 6 Questions you Need to ask When Evaluating a Business for Sale

Top 6 Questions you Need to ask When Evaluating a Business for Sale iStock

When you’re buying a business from another person or group, it should go without saying that you’re going to the cover basics, such as the cost of the business, when deciding whether to buy the business or not. Still, the sticker price is far from the only thing you should consider. To make sure the business continues running smoothly -- and to ensure you’re getting a business that can actually turn a profit -- you have a number of other questions to ask. 

Here are some other questions to keep in mind when evaluating a business for sale.

Why are the owners selling?

If you get a vague answer, it could be a sign that the business is not in good financial health, or that circumstances are making the business unviable.

Are there clear financial records?

You need to be able to look at the business’ profits and losses, its expenses, payroll and other data before figuring out what you’re in for.

Are there any challenges you should know about?

This is a big one. If the business is involved in a lawsuit, its building needs major improvements, or regulations are changing the way the owners can do business, you need to know about those things so you can make a sound decision about whether the business is right for you, reminds Jane Porter of Entrepreneur.

What type of support will you get during the transition?

Find out whether there are instruction manuals, recipe books or other detailed information that will come with the sale. Also find out whether you can count on some one-on-one training with the owners. Especially in mom-and-pop type businesses, the nuances of the way things are run are often what keep customers coming back. To keep current customers happy, you’ll need to know about those nuances and be able to mimic them. Even if you plan to make “improvements” on the original idea, it helps to know how things were done before you came, just in case you need to backtrack. Also find out whether you’ll get any on-going support, such as consulting during a busy holiday period, for example.

What are the keys to success in the business?

Some of those “keys” are things you’ll learn during the training phase, but the owners may have other insights that don’t necessarily come up in the short time you’re learning the ropes. Having them think thoughtfully about this question may bring up other important points.

How did the owner arrive at the asking price?

In other words, what’s involved in the sale? Will you get all the current inventory, supplies and equipment, and if so, how much is it all worth? An owner who’s taken the time to determine the worth of all of the items included with the business will be the one who’s likely taken better care of the business’ overall financial health and knows what the business is worth. If you find an owner who can’t explain how they arrived at the figure, it could be vastly overvalued. Then again, it could be undervalued, so if you’re still interested, it may be time to do more homework to find out if you’re getting your money’s worth. 

By taking the time to thoroughly review the pros and cons of buying a business, you could save yourself lots of headache - and even financial hardship - later on.