One of the most important stages of the business purchase process is the due diligence stage. In this stage. it is wise to have your lawyer, accountant, or advisors assist in analyzing all aspects of the business before moving forward with the purchase. Here are some questions to consider when evaluating a business purchase:
1. Why are the current owners selling the business? It is important to understand why the seller would want to part ways with their business.
2. Is the business financially healthy? Are there any customers that account for a large portion of revenue? Are there customer accounts that are over due or uncollectable? Has the business kept up with its own bills? It is important to ensure you understand the financial health of the business you are buying.
3. Will the owner provide detailed financial statements? It is also wise to request copies of any key customer or supplier agreements and leases that exist.
4. How long have the current employees been with the business? Is employee turnover high or low? Will key employees stay with the business after it is sold? Will the previous owners stay on after the sale or provide training to the new owners?
5. What kind of reputation does the business have? Be careful to avoid businesses with a bad reputation among customers or business associates.
6. What are the terms of the sale? Is the seller willing to finance a portion of the sale, or do they expect the full payment up-front? These factors can affect the price of the business, as sellers will generally accept a discount if the price is paid in full up-front.
Are you thinking about buying a business? Worried about the due diligence stage? Contact us for advice today.