7 Questions You Need to Ask Before Buying a Business

Many entrepreneurs prefer to buy an existing business rather than starting a new one. Most of the times this can be a great business opportunity that gives you a chance to prove yourself and make your dreams come true. You should do your homework before buying a business and you should prepare a list of questions that can help to make you decision clearer. The more questions you ask, the less risk there will be.

Here is a list of a few questions that you should get answers to before buying the business.

1. Why Do You Want to Buy This Business?

It’s one of the important questions you must have to ask yourself before buying any business. Finding your interests and skills will help you find the perfect match for you. Take this self-examination a bit further and make sure that the business falls along your interests.

Let’s suppose you have an interest in hotel industry then you should find a business that is similar to hotel and restaurant industry. Business brokers can help you find a business similar to your attitudes while saving your time.

2. How Much Capital Do I have Access to?

Apart from the money you’ll need to buy the business, you will also need working capital to manage expenses like payroll, inventory, rent, utilities and much more. You should carefully analyze your current cash flow and determine how much money you are going to need to perform the operation of the business. Review the financial transactions of the current business owner and talk to him or her about their annual expenditures.

3. What are your biggest challenges right now?

This is the question that you have to ask the current business owner of your desired business. You want to be aware of potential minefields. For example, if you’re buying a company that will need $10 million in capital improvements, you need to learn that up front while you’re still negotiating the deal.

4. What would you have done differently?

This question could help you learn how much growth potential the business has in coming years. This will get the owner talking about the opportunities he didn’t pursue but would have liked to. A business which is unique in the market is always the better, have more upside potential and low competition in the market.

5. If you can’t sell, what will you do instead?

Learning the owner’s plans if he can’t sell the business is the best way to determine the business growth potential. The owner might have the plan to take the business to next level or close it over time if he couldn’t sell it, By knowing this you will probably have more room to negotiate a lower price.

6. What Are the Business’ Current Prospects?

While buying an existing business you must ask to see its current client list and inquire about the current status of each client. You should buy a business which has strong relation with clients and suppliers in the market.

7. What Is My Exit Strategy?

There’s always a chance that at some point you may want to sell the business. Take a deep look at the business and evaluate what you’ll need to do to get the operation to a point where it is profitable. Plan your exit strategy at the start so that you can always be planning towards the future.