If you’re a business buyer, there are lots of exciting opportunities out there - but to find the real hidden gems you’ll need to know how to ask the right questions.
In this guide, I’ve made a list of all the most important questions you need to ask every seller. They’ll help you get a clear picture of the business’ finances, but they’ll also give you an understanding of who the seller is, and why they’ve decided to sell. That context can be critical when you reach the negotiation stage.
Some of these questions might seem obvious, others less so. But all of them are important for gathering the essential information you need to make the huge financial commitment of buying a business. Let’s get into it.
Could you please tell me about your business?
I know this sounds crazy, but many buyers fail to ask this question. It’s like interviewing a job candidate and failing to ask: “Tell me about yourself.” The answer you are looking for is a very crisp, clear, and focused one that demonstrates the Seller really knows what business they are in.
How’s business – are sales up, down, or even with last year?
Here again, what seems like an obvious question everybody would ask is often missed – and I have been in hundreds of meetings sitting on the seller side.
If the seller says business is up, then that is wonderful. Find out why. If they inform you that business is either stable or down, ask them if they are concerned and to what do they attribute either lack of growth or decline? On this point, don’t be satisfied with initial answers. Learn to ask good follow up questions. In this case, for example, to what do they attribute a swing in sales, margins or profits? Does it align with previous trends?
Why are you selling (their answer…and the REAL reason)?
I am always wary of any reason that someone gives for selling his or her business except for the desire to cash out/retire or, my personal preference, the morbid reasons: death, divorce, illness, or financial. If the owner tells you that their reasoning is new opportunities, boredom, or the business needs “new blood,” it is a warning flag for you to dig, dig, dig for details.
If they cite boredom, ask them: ‘What is it specifically that the business does not provide for you? If the business is so good, why not get someone to run it?’ And if they cite new opportunities, you might want to ask: ‘Is your new venture a similar business? Do you have to sell this one to begin the other? Does that mean that this business can’t grow to your expectations?’
What is the history of the business? How has it evolved, and what products/services have been sold over the years?
It is important to understand at what stage in its development the business is currently positioned. The longer it has been around, the more you will want to review its past, and its present competition. Has it gained or lost ground? What is the market’s perception of the business? Has it stayed true to its plan, or has it changed over time? Is it more profitable now than in the past?
Please break down the revenue and profits into the various products and services?
You want to get a sense of what areas contribute most significantly to the business. Perhaps there are some products/services that generate most of the revenue but not the profit, or vice-versa. In these cases, you’ll want to know why the company continues to offer these. Similarly, you want to identify what areas present the greatest opportunities and risks for the future.
What keeps you up at night about the business?
Every business owner has concerns about their business, regardless of how successful it is. This question will, in most cases, serve to identify what the current owner deems to be the biggest threat to the company.
If they tell you “nothing,” or their “spouse’s snoring,” you’ll want to reword the question to: “If you were not selling the business, what would be your biggest concerns about the daily operations and future for this company?” Rest assured, there’s always something that concerns a business owner. If they don’t admit to any, they’re full of it.
What would your customers and competitors say the business does best – and why do your customers buy from you?
The answer you get from the owner is most likely what they believe the customers and/or competitors will say. When you embark on the investigation and due diligence period, pay special attention to how the seller’s answer here matches up to reality. It will give you a very good indication of whether the company has been successful implementing and executing its marketing and business plans. It’s also incredibly insightful to hear what an owner thinks the competition and customers think of them, and they are usually so wrong.
Are you willing to stay on and train me post-sale? Can I hire you part-time as a consultant?
As well as providing you with some extra security, this question lets the seller know that their input is key. Also, if they are facing retirement, they may be encouraged to have a place to go, at least for a while, as they ease into their new lifestyle.
To what level can the business be built? Why haven’t you expanded the business?
This is a loaded question so fasten your seat belt for this one. Sellers will typically say: “The sky’s the limit. With the right person, this business can be doubled or tripled… easily.” It must make you wonder – if this is so, why didn’t they do it?
While their answer will almost certainly be embellished, this is a good time to corner them and ask: “If that’s possible, please tell me specifically what would have to happen to achieve that kind of growth?” Often I will ask this question after a couple of meetings, if they stick to their story.
Describe for me the profile of the ideal candidate to take over and build this business?
This is a good example of why you must pose your questions first. If you don’t, they may very well gear their answers to fit you, which is something you do not want them to do. You’ll decide this on your own without their influence.
Try and pick up certain specifics that they may allude to, as opposed to generalities. For example, hard-working, honest, and reliable is evasive. Sales-oriented, with a good background in product development, is specific. Undoubtedly, they will say that if the business has someone aggressive behind it, there are all kinds of things that can be done. Then again, this can be said of every business. Push them for specific skills.
This article has been adapted from How To Buy A Good Business At A Great Price, a course written by Richard Parker at RichardParker.com. To gain access to the full course, which walks through the entire process of finding and successfully purchasing the perfect business in detailed steps, click here.
