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Buying a business is no small transaction.
When you’ve made the decision to buy a business, you need to be sure that it’s a wise investment. So many times, entrepreneurs have been burned by bad business deals because they didn’t do proper due diligence before making the purchase.
No matter what the business is or how large or small it might be, it’s important to get to know the seller and why they’re selling at all. In this post, we’re going to help you do that by telling you the 4 questions you should ask when buying a business. Don’t let your guard down, get as much information as you possibly can before you put pen to paper.
1. What Are Your Current Biggest Challenges?
You always want to get a sense of why the seller is selling. If it’s because of certain challenges in the market, then you want to be aware of them so you can make changes to alter the trajectory of the company.
Also, this question can help indicate how much, if any, further capital needs to be invested after the purchase is made. If you have to invest another $5 million to get it back on the right track, you’ll want to know that before agreeing to buy.
2. How Did You Determine the Selling Price?
In a startling number of cases, a seller sets their asking price arbitrarily. It might be a ballpark of what they think the company is actually worth or it could be the amount of money they think they need to start over, but it’s important to understand their motivations.
Getting this insight into the seller’s mindset will help your bargaining power. If they have a bunch of financial documentation to back up their figure, then you can go to war, but if not, you might find yourself in a great position.
3. Do You Have the Financial Paperwork?
You’ll need to see the financial paper trail so that you know what you’re getting yourself into. In particular, you’ll want to look at the tax returns so that you can see hard proof of the company’s revenue, other income sources, profits, and losses over the last couple of years.
Sometimes, the best thing to do is to find the best business brokers in the area and make the purchase that way because they’ll be able to provide you with all of the necessary paperwork.
4. Could You Stay On During the Transition?
One thing a lot of larger businesses do when they eat up smaller ones is keep the seller on board as an employee to help manage the transition. Even for small businesses, the transition period is usually a tricky process because you need to gain an understanding of the processes that make it run effectively.
By giving the seller some incentive to stay on for a few weeks or months to acclimate you and your people to how things work, the transition can go a lot more smoothly.
There’s Nothing Easy About Buying a Business
It’s important to realise that there’s nothing easy about buying a business, exciting as it is. You need to ascertain as much information as you possibly can before you buy to ensure that you’re making a good deal. Ask these questions and come up with a few others that pertain to your specific situation so that you get what you’re looking for from this transaction.
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