Questions to ask when buying a business

Buying a business is a complicated process that involves asking many questions to determine whether or not a business is worth buying.  Over the course of time, you will see additional posts expanding on each of the questions below in greater detail.  Keep in mind that the list of questions below does not apply to all businesses.  And, of course, the list is not complete.  Always consult legal professionals for legal advice when researching and attempting to buy a business.   The following questions are mostly meant for the seller of the business, but some of them are applicable to the landlord, the business broker involved, employees involved, etc.

• How clean are the books and records?
• Is there additional income not reported?
• Are there additional expenses not reported?
• Who came with the Business Valuation?
• What is the condition of the Accounts Receivables?
• Are the customers paying in a timely fashion?
• Are there any customers that have special rates, terms or discounts?
• Are Accounts Payable being paid in a timely fashion?
• Are there any vendors that are going to change terms, raise prices, or stop offering products or sevices to the business?
• What is the customer concentration?
• Are there any significant customers that may be leaving the company soon for a competitor?
• Any significant customers that may be going out of business soon?
• Are there any deposits owed to customers that will need to be reimbursed at some point?
• Are there any warranty obligations outstanding, and what is the amount of them?
• Any special licenses required to operate the business?
• What is the process and timeframe to transfer these licenses?
• If the licenses are not transferable, how easy is it for the buyer to obtain and what is the expected timeframe?
• Who will pay for the Sales Tax due on the amount of the FF&E?
• How much in inventory is there?
• How much obsolete inventory is there?
• Will an inventory service be used to count the inventory prior to completing the sale transaction?
• How much seller training will be involved and when?
• Will the seller offer seller financing?
• Does the seller want to stay on after selling as an employee or consultant?
• Are the key employees willing to stay on after the sale?
• Any pending worker’s compensation claims?
• Any pending litigation?  Any active litigation?
• Any pending or active mediation or arbitration matters?
• Are there any new competitors coming on the scene?
• Is there a pending obsolescence to the business, the product or service offered?
• Any issues with the landlord?
• Is the lease at a fair market rate or better?
• If the lease terms are not favorable, are they negotiable?
• What are the personal guaranty responsibilities in the lease?
• What about the lease option terms, are they assignable to the buyer?
• How much is the lease lease assignment fee?  Who will pay the lease assignment fee
• Is the length of the lease long enough for the investment required?
• Ask the landlord if the rent has been paid on time by the seller of the business.
• Any Issues with the regulating agencies?
• Any Zoning Issues?
• Are there pending condemnation or eminent domain taking of the underlying real estate?
• Any special relations between the owners/employees and key customers/vendors that won’t remain post-sale?
• Is the transaction going to be a stock sale or asset Sale?
• Will the seller sign an IRS form 4506?
• What will the seller do after the sale?
• Will the seller sign a proper Non Compete Covenant?
• Are you aware of any pending increases from Vendors?
• Are you aware of any pending supply or capacity shortages from Vendors?
• Are the training manuals and employee handbook current and up to date?

Bear in mind that this is not a complete list of questions to ask when buying a business.  Also, not all of these questions will apply to each business that you will be investigating.  Always consult with a qualified legal professional for legal advice.  This article is not intended to be interpreted as legal advice.

For further reading and viewing you can click the Nuts & Bolts of Due Diligence article on the website.  You can also contact our Client Care Manager Sonia Chhabra by telephone at (888) 926-9193 or by email cs@justelementary.com for more information on how Just Elementary, Inc., can assist you with the Questions to ask when buying a business.