Buying a business isn’t an easy endeavor, and that’s because you have to make sure that you have all of your documentation and legal documents at hand and that you have made enough research on the seller and the type of business you are purchasing. After all, this is your hard-earned cash we’re talking about here, so you can’t risk making any incorrect decisions that could potentially lead to disaster.
Since there are so many types of businesses you could decide to invest in and there are heaps of questions you need to ask both yourself and the people you’re going to interact with in this sense, we decided to create this helpful article for you. Check out all of the questions that might have ever crossed your mind below.
Questions to ask when buying a small business
- 1 Questions to ask when buying a small business
- 2 Questions to ask when buying a business in Canada
- 3 Questions to ask when buying a business – UK
- 4 Questions to ask when buying a cafe business
- 5 Questions to ask when buying a franchise business
- 6 Questions to ask when buying a restaurant business
- 7 Questions to ask when buying a retail business
- 8 Questions to ask when buying an online business
- 9 Questions to ask when buying into a business partnership
- 10 How to hire a good lawyer when you’re thinking of buying a business
Some of the more obvious questions we came up with are those that you have to ask the person selling the business. Here they are listed below.
- What does the business do?
- What is its history?
- Why have you decided to sell?
- How old is your business?
- How long has the business been operating under you?
Since you’re mulling over purchasing it because you want to make it profitable or because you’re already looking to get one that already makes enough money, here are some questions to ask when it comes to the financial aspects.
- What were the annual net profits of the business in the past couple of years up until now?
- What were the annual gross revenues for the past couple of years and to date?
What about the price? Can you negotiate? Ask the questions below to find out more about this.
- What are you selling the business for?
- What are the assets that you’ve included in the price?
- Is the price supported by what the business is making?
- Is seller financing available?
Finally, when considering getting a small business, there are also a series of questions that you should ask yourself. Here are several examples:
- What is the reason behind your motivation? Why do you want to buy this particular business?
- Why not just start a similar one from scratch?
- Do you perhaps have any prior experience in the same field or some interest in it that could make you capable of handling the business and turning it into a successful venture?
- Have you looked at the competition?
- Do you want to run it by yourself or are you planning to get a partner?
- Can you afford to purchase it or do you have to look into various methods of getting the money?
Questions to ask when buying a business in Canada
Purchasing a business in the beautiful country of Canada isn’t the same as it is in the United States or anywhere in the world. Sure, there are some common grounds that have to be covered, but one definitely needs to do his or her homework before going on this adventure. Here are some questions to ask a business seller (or yourself) when thinking of buying a company in Canada.
What kind of business can and should you buy?
According to the official website of the Government of Canada, you should first start by deciding between the two types of businesses that are available. Some of them are franchises and others are independent (also known as traditional). But how are these two different?
Well, franchise businesses have a proven track record, a built-in customer base, a set of regulations to follow, as well as plenty of setup, support and training that already exists. On the other hand, independent businesses will offer you more control and responsibility, there are no fees that you have to pay for the franchise, but you also have more opportunities as well as a little more risk.
Here are some questions you should ask when you’re evaluating a Canadian business, whether it’s a franchise or an independent one.
- What is the location like? If it’s an online business, how does the website look and what is its history? Is it secure?
- Does the business have a decent reputation? Check for customer reviews online.
- How easily accessible is the business?
- Can the services or the products generate any revenue or should you focus on doing just that?
- Is there a good relationship between the business and the bank or its suppliers?
On top of everything, you have to know the steps that you should take before buying a business, and for that, we strongly suggest checking out the Government of Canada’s website.
Questions to ask when buying a business – UK
When buying a company in the United Kingdom, you have to ask the seller the same questions that we have noted at the beginning of the article. However, there are certain differences in terms of the legislation that you need to be aware of, especially if you are not a British citizen. Let’s look at some inquiries you should make before deciding on whether this is the right thing for you or not.
- Are there any legal problems I should know about?
- Can I have access to all of the financial records for the business?
- Have you had your business appraised?
- Can I have a copy of all of the accounts?
- Do you have an accountant that you can recommend and would they be willing to work with me? *note — this is especially important if you are not a British citizen
Questions to ask when buying a cafe business
Cafes are extremely popular nowadays and they have become even more so with the rise of online entrepreneurs — particularly with people who do not work in a traditional or corporate environment and as such, don’t have an office. Buying someone a coffee is a great way of making friends but it’s also an amazing introduction if you’re looking to do business.
That said, there are some things you have to ask yourself (and the seller) if you’re getting ready to become a cafe owner.
- What is the profit margin?
- Are there any future developments in the area or is the cafe already located in an area frequented by tourists, businesspeople, or students?
- Is there any potential growth, something you can do to increase the profits?
- What is the age of the cafe?
- Will the staff be staying with you or is the cafe run by a private owner (such as a family) who will leave when you are going to be taking over?
- What is the state of the equipment in the cafe?
- What’s the relationship with the suppliers?
- Is the lease of the business ending soon? If it is, you might have to move it and lose more than a good share of your customers – it might actually make more sense for you to avoid purchasing it altogether.
Questions to ask when buying a franchise business
Franchise businesses have both advantages and disadvantages, and that’s because you’ll be able to reap the benefits of a well-known brand, but on the other hand, you’ll have to pay fees for being able to operate under it. Besides, some of the systems can be more or less rigid, which is why independent business owners that have built their companies from scratch might find that they are simply incompatible with the way these firms function. Let’s look at some questions you need to ask before you buy a franchise.
- Do you like rules? Do you actually enjoy following a system?
- If this is your first business, are you willing to take on the role of business owner?
- Have you done your research with regard to the financial and legal implications of owning a franchise?
- Do you have any particular interest in the industry you’re getting the franchise in?
There are some things you should find out from the franchise brand, too.
- How are conflicts resolved between the franchise brand and the franchise owner?
- Can I negotiate the fees for the first couple of years until I see some profits?
- Are there any negative trends within the industry that I’m going to be operating in?
- Are there areas of support and if they are, how much support is being offered?
- Do you have statistics of the franchise businesses that have failed and the reasons for which this happened? Can I see it?
- How long does the franchise agreement last? Can I renew it?
- What kind of training is offered and most importantly, is it free?
Questions to ask when buying a restaurant business
From the series of questions to ask when buying an established business, if you’re passionate about food, gourmet, or just generally making people feel good once they had a nice meal, you might be interested in acquiring a restaurant. If that’s the case, you should do your homework beforehand both in terms of what it means to be a restaurant owner (financially) and in terms of the reputation that the local business has built up until now.
You might find that restaurants that have had poor management for years on end will be places that people will generally avoid no matter if the owner has changed or not.
As a general idea, the average price per square foot when buying a restaurant is about $100 and the median startup cost – without you purchasing the land – is around $275,000. Here are some questions to ask before becoming a restaurant owner.
- What’s the age and quality of the equipment? When was the equipment last serviced? Do I have to repair anything? Is the gear in compliance with the current safety regulations and standards?
- What does the sale include? Furniture, staff, equipment, etc.
- Has the restaurant had any pest problems or health inspection violations in the past?
- Will I be allowed to use the same restaurant recipes or do I have to come up with an entirely new and different menu?
- Do I have to negotiate a new lease or will the landlord transfer it to me?
Questions to ask when buying a retail business
According to Inc.com, retail businesses have a median asking price of around $230,500. Compared to some of the others, the retail sector offers a bit more affordability, which means that you won’t have to make significant sacrifices to become a business owner. However, this financial aspect doesn’t necessarily imply that the buyer is less exposed to risks.
In the retail sector (especially the restaurant category), there is a high failure rate that needs to be considered. Furthermore, online shopping has become more and more popular in recent years, so before committing to an acquisition, it’s highly important to know what you’re getting yourself into.
Here are some questions to ask when buying an existing business in retail.
- How much is the business worth?
- Do you have access to the business cash flow?
- Is the lease transferable?
- Is the business absolutely dependent on several key customers? If this is the case, you need to know that, should these clients disappear completely, your business could, too since you’d have no one to sell anything to.
- What is the reputation of the company and its community (even online)?
- Can you review the list of vendors that the current owner works with?
Questions to ask when buying an online business
The definition of an online business can be more or less complicated, because websites can make money through a variety of methods that just aren’t possible ‘in real life’. Therefore, the questions to ask when buying an existing small business in this respect are different compared to those that you’d have to ask when buying a practical, physical company with physical assets.
On top of everything, the risk is slightly higher when purchasing an online business, and that’s because you’d have to go through a really extensive and thorough research process that would basically lead to you knowing absolutely everything that happened with the business ever since it was created.
Here are just several inquiries that you must make before making up your mind.
- How long ago was this business started? It’s highly recommended that you don’t invest your cents in one that hasn’t been around for more than 12 months.
- What is the competition and who are the major players in the industry?
- Are there any chances of the business becoming obsolete?
- Do you have any means of verifying the business revenue?
- Can you have a look at how the business has grown in the past years?
- What is the company’s reputation? Does it have an established customer base?
- Can you check the website daily traffic?
- Does the business rank well in the search engines? If so, for how many keywords and on what positions? Will you have to invest a lot of money in an SEO campaign?
- Are there improvements that have to be made on the website?
- Does the business have an inventory or is it based on dropshipping? Who is the one that supplies the products, if there are any physical ones?
- What are the marketing strategies that have been used up until now?
- Has the owner paid any taxes? If they claim that they have, find out if the claims are true.
Questions to ask when buying into a business partnership
Before we move on to a somewhat legal section, we decided to include some questions that you should have for your potential business partner in case you find that you don’t have enough funds available to become the sole owner of a company or you’re actually looking to buy into one.
- Why do you want to do it? It’s a simple question but it can have a complicated answer. Some people might have questionable reasons whereas others can make financial decisions based on their personal relationships, and many individuals will tell you that that’s not necessarily a good idea.
- What is the personal and financial situation of your partner?
- What is the amount of time that you will be investing in managing the business and what is the amount of time that your partner will?
- Have you done business with this person in the past? Do you know how he or she reacts under pressure?
- How are the profits divided? What is the best way of splitting profits?
As you can see, there are many types of questions that you need to ask when you’re thinking of purchasing a business. Since it never ends with the answers, we thought it might be helpful if you also had the opportunity to check some of the legal aspects that you need to consider, as well, and one of the more important ones is hiring a good attorney.
How to hire a good lawyer when you’re thinking of buying a business
Here are several steps to follow:
- Interview the lawyer.
- Check their references.
- Always negotiate their fee.
- Find out whether they have the same basic principles as you (drafting an insincere contract will make you look insincere to the seller or potential partner, and that’s the last thing you might want).