Key Questions to Ask Before Buying an Established Business

Buying an established business is a great way to enter into the business world, or to expand your existing business empire. But purchasing a company isn’t something to enter into lightly.

Becoming the prospective owner of a new business means doing your homework, researching the business you plan to acquire, and working closely with a team of advisers.

Here are five key questions to ask yourself, before entering into a deal.

Why are They Selling the Business?

It’s vital that you know WHY the current owner is selling. It may be that they simply want to move on to a new business venture or retire. But they may also be trying to extricate themselves from a business that’s not performing well or has intrinsic issues.

Important questions to ask will include:

• Is the owner retiring?
• Are they facing financial difficulties?
• Are they looking to pursue other opportunities?
• Are there any legal or regulatory issues?
• Are there any personal reasons for the sale?

Are the Finances in Order?

A common problem with both startups and established businesses is a lack of cashflow. It’s possible to have a business with a reasonable customer base and ongoing sales, but poor margins and rising operational expenses have a negative impact on the company’s finances.

Before you buy, drill down into the company’s finances:

• Get a copy of the business’ accounts, both statutory filings and internal management accounts, and have them reviewed by an accountant
• Look for any red flags, such as debt, losses, or cashflow problems
• Make sure the business is profitable and has a solid financial foundation.

Are the Staff Capable and Engaged With the Business?

As the saying goes, your people are your most important business asset. So, prior to buying the business, it’s important to get acquainted with the top team, management, and employees.

To learn more about your prospective workforce:

• Meet with the key employees and get their input on the business
• Make sure the core team is willing to stay with the business after the sale
• Think about the cost of replacing any key employees who leave.

What Governance Do You Need to Do?

Getting your due diligence and governance done is such an important step in your pre-purchase planning. You need to know this business is a viable enterprise, that there are no links to undesirable activities, and that you’re not taking on a whole load of legal issues.

To make sure you’re ticking all the correct governance boxes:

• Review the business’ contracts and agreements
• Run due diligence checks on the company and its owners
• Make sure you understand the legal obligations of the business
• Get legal advice on any issues that you are not sure about.

Can You Get the Best Price?

Purchasing a well-respected brand is a great move for an entrepreneur, but you don’t want to pay over the odds when agreeing on a deal. It’s important to have a clear ceiling on your budget and to stick to your guns when it comes to negotiations on price and conditions.

To help secure the best price:

• Do your research and find out the fair market value of the business
• Be prepared to negotiate with the seller to bring the price down
• Don’t be afraid to walk away from a deal if you are not getting a fair price.

Talk to Us About Planning the Purchase of a Business