The business tycoon who is looking to start a new business may be interested in buying an already established business. Seeing ‘Business for Sale’ is exciting for the buyers, but there is so much to look for. It includes tax returns, seller financing, customer base, cash flow statements, legal matters, business plans, profit margin, financial health, customer list, customer loyalty, market approach, etc. Knowing the complete details of the previous owner is also mandatory for the buying process.
Buying an already established business can be an enormous opportunity. It gives us an opportunity to ameliorate the already set business and/or start it anew. For any business, we need to make sure that we are buying a solid money-maker, not a business that is plummeting daily.
Therefore, it is absolutely mandatory to take all the precautionary measures and do ask the current owner the requisite questions. You should be robust in communications and negotiations for dealing with the businessmen and the dealings related to businesses. It saves from unexpected and unavoidable mistakes.
The best six questions we can ask while buying a business are as follows:
- Why Are You Selling?
- What Are the Business’s Biggest Challenges?
- How Did You Arrive At Your Valuation?
- Do You Have Any Past, Pending, or Potential Lawsuits?
- How Are Your Financials?
- What Is My Exit Strategy?
1. Why Are You Selling?
One of the most important questions to ask a business owner who already owns a business is: why is s/he selling his/her business?
This looks like a simple but very blunt and targeted question, eliciting the information you want to know. It is also really profitable and mandatory to delve into the answers they provide us with. They may want to retire from these tasks or want to start a new business. But if you see any untruthful or unreal answers, that would trigger more attention and concerns.
2. What Are the Business’s Biggest Challenges?
When starting a new venture, we should be aware of all the necessary and unavoidable challenges the already-established business faces.
Is this business located in the fully-soaked market? Is the quality of the product up to the mark or of lower quality than its competitor? Is this a matter of merely a slight mismanagement?
Knowing the answers to these questions can pave the way for you and give you directions for making this business successful and lucrative.
3. How Did You Arrive At Your Valuation?
How you value any business is such a catchy task. There is a huge chance that the price which the current owner is asking for is the exact same amount he needs to take another step in their lives. On the one side, this can facilitate you in buying a precious thing. However, it can also cause overpayment.
Thus, knowing how they fixed this price for selling their businesses will give you a deep insight into evaluating a reasonable price. If you feel that they are asking for unjustified money or overcharging, you can negotiate better.
4. Do You Have Any Past, Pending, or Potential Lawsuits?
This is such an essential question. You would never want to scan through a mountain of pages to find out if there is a legal case against the business you just bought. Hence, the best solution for this is to ask the current owner to give you such assurance in written form. This will legitimately help you if you face any legal hiccups in the future.
5. How Are Your Financial statements?
As a potential buyer, it is recommended to thoroughly examine all the legal, financial, and tax-related documents and balance sheets. We need to clarify that the business we are buying is not bleeding a lot of money. Otherwise, it will drain our company rather sooner than later.
6. What Is My Exit Strategy?
We are supposed to ask this question every now and then. Mostly the business is purchased for selling and earning a considerable profit later. Except for the family businesses, we are quite prone to sell the business we buy for a profit and/or as an exit strategy in case the business doesn’t go well.
Thus, we need to chalk out an effective and practicable plan. This plan will work for you and will most probably amplify your new venture in the future since you would like to get your business to the level where it becomes both sellable and profitable. Therefore, this plan can also hugely facilitate you in earning a respectable profit.
Before buying any business, one should ask all the questions mentioned above to be clear about everything. To stay safe, one should not compromise on anything and stay vigilant and active before buying any business.
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