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Seller financing usually covers 10% to 25% of the purchase price of a company. Once you start seriously considering buying a business, you’ll want to get the financial statements verified by an independent auditor. Any legal obligations and liabilities you will not assume need to be paid off before closing. Don’t let the owner say he’ll pay them off later because the legal doctrine of “successor liability” means you become liable after business purchasing. This question helps establish the mindset of the current owner. It might also show differences in motivations that could be impacted if a company grows.

Navigating the Sale or Succession of a Family Business

Staff and customers can be perturbed by a business sale, and publicity should be handled carefully. If the seller were to lie about certain elements of the sale, a warranty can allow you to seek damages against them. It’s worth checking if the seller is willing represent and warranty any aspects you’re unsure of. Some businesses rely too heavily on one or two large clients, and this exposes them to a large degree of risk. If one of these clients should fold or move elsewhere it has the potential to have severe ramifications. If this is the case, you may need to check the health of the client businesses too, as well as provide plans to diversify your client base.

• So, be thorough in your research and use this guide as a helpful tool to steer you in the right direction.
• These reports evaluate how a business generates its revenue, and shows the company’s earnings before interest, taxes, depreciation and amoritisation.
• If the seller does, it could potentially make transitioning clients difficult.
• Longevity is one of the tell-tale signs that a business may be worth buying.

If the business is centred around a special product that isn’t protected, then a competitor can soon copy the same item and render any exclusivity useless. Ask if they have tried to patent their product, and if not, look into the possibility yourself. Lots of novice entrepreneurs take on businesses based on their interests and hobbies, then find they don’t know quite as much about the subject as previously thought. Ensure you know your product/service inside out, or at least hire somebody that does. Also find out how many of the current owner’s licenses and permits will transfer over to you.

What Contracts Is the Company Currently Bound By?

Performing the proper due diligence should be one of the first steps that a potential buyer takes. Uncover any ongoing or pending legal issues, such as lawsuits, licensing violations, taxes, or intellectual property disputes. These factors can dramatically impact both the business’s current performance and its value.

It’s like checking the scoreboard to see how well the team is doing by looking at sales numbers, how much customers like the brand, and how it stacks up against competitors. Knowing any legal challenges the business faces or has faced is critical. These can affect the business’s financial health, reputation, and day-to-day operations. This isn’t just about peeking at the financials or the legal documents; it’s about diving deep into every aspect before buying an existing business. Now that you’ve determined that the business is worth buying, it’s due diligence to ask the business owner what their asking price is. When buyers evaluate, they often adjust profit to what’s called EBITDA (earnings before interest, taxes, depreciation, and amortization).

What’s Your Asking Price?

Understanding the company’s culture gives you an idea of whether the business is a good fit for you. You can also ask how long employees have been with the business, what duties or roles they fill, and if the business currently provides employee benefits. Having genuine and relevant answers to this question is a good place to begin if you’re interested in buying a business. The following questions will help set you on the right path before approaching the current owner.

Selling a Business?

Any opinions expressed are those of the authors and do not necessarily reflect the views of Benchmark International. Market trends, forecasts, and forward-looking statements are inherently uncertain and subject to change. Nothing in our content should be relied upon as a substitute for personalized advice from qualified professionals.

Don’t give potentially unscrupulous sellers any opportunity to avoid telling you salient information. “Around 20k” may sound like £21k to you, but may mean £30k to them. You’ll need to be incredibly stringent on your vetting for potential partners. Going into business with a friend is a sure-fire way to lose friends. You’ll need to ensure that any potential partner is 100% in agreement with you about what direction you intend to take the business. It can be easy to underestimate just how much time you’ll need to spend on a new business.

Digging into any plans 7 questions to ask before buying a business for growing the business or introducing new offerings is important. This could mean looking at market research, prototypes, or potential partnerships already in the works or being considered. These steps can significantly affect how the business evolves and what resources it’ll need. Sometimes, businesses have special deals with their suppliers that give them benefits like better prices or exclusive products. While these can be great, they can also make the business too reliant on one supplier.

Any financial documents relating to the company should be looked at. Younger businesses won’t have as much as many records as this, but you should be asking for as many as you can get. If expensive machinery or equipment is included as part of the deal, try to find out if it has been serviced regularly, or has needed several repairs. Old or badly maintained equipment could become a costly acquisition if they need repairing regularly. Before you start knocking on doors, there are a few questions you should ask yourself first. If you need help conducting thorough due diligence, developing a strategy, or evaluating a potential acquisition, I’d be happy to assist.

What Customer Concentration Risks Exist?

This may seem obvious, but many people never ask more profound questions about why the owner is motivated to sell the business. If you already own a business and are planning a merger, know that a business purchase can be disruptive to business operations. It takes management time away from both small business owners, and key employees from the newly acquired business will take time to acclimate to the new company culture. When you’re considering buying an existing business, it’s crucial to ask the right questions to the current owner. They will help you gain valuable insights and avoid costly mistakes. Buyers should request balance sheets, profit and loss statements, tax returns, and lease agreements for year-end over the past four years.

She leveraged our dependency, tried to force me to extend cash without a PO, and nearly put me in a financial bind. You need to know if the business is owner-dependent or systems-driven. These could include bonuses, compensation, or additional holiday days accrued after time served. Some businesses experience dramatic peaks and troughs throughout the course of the year.

• The new business might use more up-to-date machinery and processes that see your current workforce to struggle to adapt.
• Details need to be exact to avoid complications further into the deal.
• Conduct a working capital analysis to assess the business’s liquidity.
• To get this information, visit local county offices to see which commercial properties recently had a change in ownership.

That’s why online business valuation calculators and free tools often mislead. Many of them inflate valuations to keep you optimistic (and on their email list). Business buyers, however, care less about what some tool tells you and more about whether your business produces steady profits with manageable risk. The acquisition of a new company can make for an exciting time, but caution should be applied to any deal announcement.

This strategy can include combining administrative functions, streamlining supply chains, or integrating product lines. It’s also important to consider how the teams will work together and how to manage any overlapping roles or functions. Ethical mishaps can damage a company’s reputation and shake customer trust, potentially leading to lost business.

Knowing who your potential competitors are can help you identify if it’s a business challenge you want to take on. Find out which of those contracts are still in effect and the policies that bind the contract so that you don’t break any upon purchasing the business. Legal suits also indicate impending liabilities in the company’s future. Verify that they are truly business assets and not liabilities cloned as assets.