Are you in the process of purchasing a business and unsure of what factors to consider? With so many aspects involved, it’s critical to seek guidance from a professional who specializes in business buying. One of the initial steps in evaluating a potential business involves thoroughly scrutinizing the company’s financial records and legal documents. Additionally, it’s important to ask detailed questions about the day-to-day operations, covering all aspects from the entrance to the exit.

To assist you in this process, here are some important questions to ask the business seller:

1. What are the owner’s plans for the business?

2. What is the potential for growth?

3. Why is the business being sold?

4. Can you provide P&L statements along with tax documents?

5. How much initial investment is required and how can I structure my offer along with any owner financing options?

Furthermore, it is vital to consider the current employees of the business:

Keeping key employees is critical to ensure that operations run smoothly after the acquisition.  A good strategy is to consider making employee retention a condition of the sale.  Incentives like salary compensation, equity or a new job title can encourage them to stay and contribute to the success of the new business.  Retained employees possess valuable insights into the internal workings of the business, providing an excellent foundation for future success.

Another factor to consider is whether the current business owns or leases its premises and equipment:

Determine whether the property and equipment are owned or leased by the seller. Can you continue the existing lease or renegotiate the terms after the sale?  Furthermore, it’s important to review the distribution of marketing expenses and identify any vendor contracts.  Be cognizant of customer-concentration.

In addition, it is critical to inquire about any outstanding taxes or liens on the property.

It is crucial to determine whether the business owes any unpaid payroll taxes, sales taxes or property taxes.  As an advisor/broker, we recommend obtaining written confirmation of any outstanding taxes and verifying the property is free of any liens to avoid assuming those liabilities.

Moreover, consider the existence of any prepaid expenses and how they will be accounted for before the completion of the sale.  

Digital marketing has become a crucial aspect of businesses. Determine whether any marketing, advertising or SEO services are currently in place and whether they will continue under current contracts.  Request a comprehensive list of all agreements, subscriptions, memberships and contracts from the current owner to determine whether they will be prorated, canceled or continued post-sale.

Finally, address any outstanding accounts receivable:

Before finalizing the sale, it’s essential to clarify who will be responsible for outstanding accounts receivable.  Establish a plan for managing both accounts receivable and accounts payable during the due diligence phase.

In conclusion, purchasing a business involves asking the right questions and knowing what to look for.  The points discussed in this guide are just the beginning and it’s essential to be as thorough and diligent as possible.  Seeking guidance from a professional is always advisable.  If you have any questions, Bravo Kilo Advisors is available to provide support and answers.