If you are looking to buy a business, there are a few questions you need to ask a business broker before you commit to the purchase. Understanding more about the business for sale will help you make an informed decision, and may shed some light on how to best maximize your profits once you take ownership. Here are 7 questions to ask before you buy a business for sale.
To Better Understand Specific Business Basics…
1. What does this business do?
2. Why is the seller listing the business?
3. How long has the business been established, and how long has it been under current ownership?
If the business offers goods or services that you aren’t genuinely interested in, or if the products are completely unfamiliar to you, it may not be your best fit. Additionally, if the business is brand new, or not well established in the market, it may be difficult to get it up and running. Even more, if the business has changed owners frequently over the course of its lifespan, that may be a red flag that owners are unable to make it work. Brokers will provide the best insight to help in your overall decision making concerning these questions.
Questions to Uncover the Financial Track Record of the Business…
4. What are the business’ past two years’ annual gross revenues?
5. What are the business’ past two years of annual net profits?
The answers to these questions will help you see how the business has been doing financially over the past couple of years; some go back 3-5 years, depending on data needed and caliber of business. Compare the answers against financial documents that verify the information is correct. You need a clear and accurate picture of how the business is performing to make an informed decision about whether or not to move forward with the purchase.
Questions About the Valuation and Price of the Business…
6. What is the purchase price of the business and what assets, fixtures, etc. are included?
7. Is the sale and purchase price in line with the financial reports and profits reported by the business?
You need to fully understand how much the business is going to cost you and what you get for your money. Never assume that things like- signage, furniture, computers, equipment, or lighting fixtures will be included in the sale price. To avoid surprises and misunderstandings, make sure you understand exactly where your property begins and ends; as well as which assets are included in the price, and what the monthly operational expenses are, to ensure that everything is clearly outlined.
You also need to make sure that the profits reported are enough to cover and justify the purchase price. Be careful to observe the profit reports; and if they are not high enough to support the mortgage, operational expenses, taxes, and other financial business requirements, be clearly informative with the seller as to why you are making a lower-priced offer, or move on.
Asking these questions can help you find and purchase the business that will help you build wealth, not drain it. If you can’t get clear answers on these questions, allow a business broker to assist you, or let the broker help you keep looking.
Contact Del Lingco International if you are looking to buy a business for sale.