What Questions Should I Ask When Buying a Business

What should I do with the information and what questions should I ask?

With any enquiry you make on a business the agent should have you complete a confidentiality agreement if not straight away atleast after providing you with some general information. At Merchant Business Brokers buyers can register through our website and then get a business summary on the business in the first instance with a confidentiality agreement process again through the website should a more detailed look at the business be required.

Once you have started the process the following 10 questions could be very useful;

  1. Ask for an information memorandum – this should give a well rounded look at the business covering quite a few key areas of the business
  2. Ask for the profit and loss trading statements and if possible for 3 years
  3. Ask for a list of all the assets that will be included in the sale (don’t forget intellectual property such as websites, trademarks or copyrights)
  4. Confirm what the lease period with options are and what the current monthly rent/outgoings and GST is
  5. Ask the owners if there are any legislative, compliance or training requirements for example liquor licence for hospitality, contracts or agreements with suppliers, builders licences etc
  6. Ask the owner about their strongest competition and ask what you do differently or could do differently – looking at potential upside for this business
  7. Ask why the owner is selling when you are face to face. The reality is many owners are just tired from running a business for years and this could also present opportunity for a new energetic owner
  8. Ask if the owner can take a month of holiday time. If they can the business is likely to be systemised with quality and reliable staff in place which is terrific – if no, find out where the weaknesses are and again this could present an opportunity for business growth and development
  9. Take all the financials to your accountant and get an analysis done with any relevant business benchmarks. This may lead to quality questions about sales, KPI’s, variances between the years and also highlight the consistency of the business. Remember issues can be opportunities and help with the negotiation process
  10. Always respect the information – it is confidential. Ask if you can show people you want advice from other than your accountant, bank manager and solicitor it is respectful and will be appreciated. If you don’t proceed ask if you should destroy the information etc Finish on a high note as the broker may still be working on finding you another opportunity – build a relationship built on trust and respect.