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Questions Every Buyer of an Existing Business Should Ask

Starting a business from scratch is a lot of work. That’s why for those who want their own business, an existing business that is for sale is hard to pass up.

Purchasing an existing business for sale could mean preventing the inconveniences of starting a business from the ground all the way up. For first time entrepreneurs, an existing business is a safer option since they can acquire the customer base, the regular cash flow, the goodwill associated with the business name (hopefully) and the contacts from the current business owner. It’s a full package.

Despite its appeal, it does not mean that an existing business that catches your attention is the one that you will buy on the spot. Set the path straight by asking the right questions.

Why is it on sale?

Asking the owner why he is selling can either raise red flags or just confirm your intention of buying it. The response is also an indication of the seller’s motivations.

An owner may sell his business because he is retiring and no one in his family wants to continue what was started. It is possible that the owner is migrating and the better option is to sell the business than closing it. Worse, it is possible that the owner wants to try a different industry. If the owner is selling because the business is failing, that is one example of a raised red flag that you should not miss.

What is the business’ reputation?

A business’ reputation is essential to its survival. Reputations are formed and characterised by the trust and confidence it has gained from its customers.

This is a question you can answer on your own. If the business is still operational, try to visit the place. Try to evaluate the kind of customer service available. Are they attentive to their needs whenever their attention is called? Do you feel valued as a customer? Are they appreciative of your presence in the store? If the business is already closed and waiting for a buyer, try to ask for customer feedback and assess from there.

What is the future of the business?

When buying a business, what you should look for the most is its profitability. There is no point in buying an existing business that has no future and will require you to exert the same effort as if you started a new one from scratch. Buying an existing business means acquiring its potentials as well as its problems.

Request for financial statements from the seller. Buying an existing business means buying its income stream and the expenses of its operation. Seeing the financial statements will also let you know how you can recast it once you acquire the business.

It is possible that you will not see the financial statements on the first meeting, but you will need this eventually. If the seller does not want you to see the financial statements (maybe it’s really bad, he doesn’t have any documents to show at all or he thinks that you are not a credible buyer), that should be your cue to look for another opportunity.

There are definitely more questions to ask when you are in the market for an existing business to buy. Keep your questions aligned with your objectives and plans. Always think of the future and how this can be a sound decision you can make today.