Saturday, September 15, 2007

Buying a Business: Questions to Ask in the Process

Before I decided to start my own business, I had gone thorough two attempts at buying other companies.

The first time, I decided not to make an offer after thorough examination of the sales and financial reports with my CPA showed how long I'd have to pump my own capital into the business before I could turn a reasonable profit.

The second time, I was looking at a business that wasn't "market-ready" (the owner was privately in discussion with me to buy, but hadn't listed the company or prepared it for sale). In that case, I consulted with two banks and my CPA to determine the value of the business, made an offer, but was met with an unrealistic counter-offer from the owner that was more than triple the value of the company.

Both experiences were tremendous learning opportunities and I have no regrets about the money or time I spent on them, even though they didn't turn into what I expected or hoped.

If you're considering buying someone else's business, ask the broker or owner the following questions to try to determine if the business is the right fit for you.

(Note: This is by no means a thorough list! The due diligence process of learning about a business can take weeks or even months. These are just some starters to help you get a feel for the circumstances the business faces--and that you would face if you were to take over. I strongly recommend you to work with a skilled accountant and attorney if you're interested in buying a business.)
  1. What's the corporate structure?

  2. What are the posted (or regular) business hours? How many days a year is the business open? Has it varied greatly over the years or stayed relatively the same?

  3. Why specifically do the owners want to sell now? Are there any threats or problems on the horizon? Has there been major displacement by a competitor?

  4. Has anything changed with any suppliers? Any terms of contracts different now? If so, why?

  5. What's motivating the sellers? What do they hope to walk away from with the sale?

  6. Are there any filings against the business of any kind (tax, legal, financial)? (Note: you should pay your accountant and attorney at some point in the process to conduct a search for this information on your own. Don't take the seller's word at face value, no matter how much you trust them.)

  7. What kind of financing are the sellers offering? On what conditions?


Kim Jones said...

I know this is an old post, but I'm hoping you or another reader can help.

I'm looking to buy a business, and the info you provide is helpful. The trouble is that I'm not entirely sure where to start looking. I've searched on the Internet and the newspaper but could use a bit more direction.

Tara M. Bloom said...

Hi Kim,

I'll try to do some more posting about this subject in the near future. I can see from keyword searches that the topic of how to find and buy the right business is a big one that's of interest to lots of people.

In the meantime, I recommend buying the book "How to Buy and Sell a Business" over to the left there in the blog margin. I found it REALLY helpful when I was going through the process.

kim jones said...

Thanks Tara. I'm going to check that book out soon. I'm still in the early brainstorming/ learning about the business of buying stage. I did search around and found some good websites to browse. looked pretty good. After some more reading (and more money saving), I'll take the plunge. In the meantime I'm just going to be browsing.

Anonymous said...

@Kim, give a try. It lists over 100,000 businesses for sale.