10 Questions to Ask the Current Owner Before Buying Their Business

The prospect of purchasing a business is an exciting one, filled with many potential opportunities. However, it’s crucial not to get so caught up in the excitement and possibilities that you gloss over asking the right questions you need to make the best decision. Everyone should be asking for the financials including the company’s, and sometimes the owners’ personal, tax returns, profit and loss reports, and balance sheets. But here are ten other questions you should ask a current business owner before you get too excited about putting a letter of intent together for the potential purchase of the company.

1. Why is the Business for Sale?

Attempt to evaluate how reasonable and genuine the business owner’s response is. Perhaps they are moving on to a new opportunity that works better for their current situation. Or maybe they built and grew the company as best as they can within their abilities and are ready to retire. The answer to this question can give you insight into any current issues the business might be facing.

2. How is the Business Currently Promoted?

Their answer should provide you with an idea of what is working and what isn’t when it comes to the marketing you want to do. Get a sense of their investment into marketing and advertising, including time spent and outright costs.

3. Is There a Past History of Lawsuits or Potential Creditor Claims?

If the business has a history of legal issues, it should set red flags waving. Purchasing a company with a poor reputation or known bad practices can be challenging to recover from financially. It could also affect your future business ventures.

4. Is the Intellectual Property Owned?

You have the right to know what IP the business owns and what IP they may be paying for. If they don’t own it outright, it is something you will need to budget for when you purchase the company.

5. How has the Business Changed Since You Took Over?

This question won’t apply to everyone, but it’s a critical one. If you are purchasing a company from someone other than the original owner, it can be interesting and helpful to determine how the current owner changed it. Their answer can give you insight into whether it’s a good purchase and how you may want to run the business.

6. What is the Basis for the Asking Price?

The current owner might have their own personal valuation performed, in addition to an evaluation from an independent auditor. If these figures are a way apart, it may signify that there’s more going on than what is being disclosed.

7. What Liabilities are Attached to the Company?

If the company has current debts now is the time for the owner to disclose them. You should also inquire about the following:

The mortgage rate of the business premises
Equipment bought on hire purchase (buy now, pay later)
Long-term contracts with existing clients

You will almost always require that the seller pay off any current debts at closing or before purchasing the company.

8. What Licenses and Permits Will Need Renewing?

Most organizations have some sort of required local permitting or licensing specific to their industry. Asking the current owner this question now will save you a substantial amount of time and possibly legal trouble later on if you fail to comply with the correct permits and licensing laws. It’s also wise to know how much these will cost.

9. How Much of the Business’ Success do you Attribute to Personal Loyalty Rather than Business Loyalty?

You will want to find out if customer retention is high due to the owner’s personality or because of the services or products offered. If you are considering purchasing a family-run business, this is a fundamental question to ask. Suppose the current owner leaves, and it was their personality or loyalties that kept the company going. In that case, there may not be much hope for the business continuing in their absence.

10. What is Your Current Business Plan?

Ask to see the seller’s current business plan. It will provide you with an idea of projected business development and expansion that hasn’t already been disclosed. Their plan may also give you additional information about why the current company owner wants to sell.

Hackstaff Snow Atkinson & Griess Can Help You Ask the Right Questions

Even if you’ve bought a business in the past, you may not know all the questions to ask the seller. However, that doesn’t make the questions and their answers any less important. Anyone considering the purchase of a business should have representation from a highly experienced and skilled business attorney. Your attorney can help ensure you ask all the right questions. Then they can help you assess the answers to determine if buying the company is the best option for you. Asking the right questions and evaluating the answers before getting too deep into a deal is in your best interest. Call the HSAG attorneys today to learn more about how we can help with a business purchase.