5 Questions to Ask A Seller Before Buying A Business
So, you’re interested in buying a new business and you want to make sure everything runs smoothly. If you don’t ask the right questions you may run into issues like unhappy employees, unorganized financial documents, or a lack of repeat customers.
But if you know about some of these things ahead of time, you can mitigate them or steer clear of unsalvageable situations. There is a long list of questions that you could ask. We narrowed it down to five.
1. “Why are you selling and why now?”
This is the basic one and it needs to be clear from the jump. Retirement, illness, other opportunities, lack of work-life balance, poor ROI — if you don’t ask you may not know. If their answer doesn’t seem truthful or raises any red flags, then you can decline the offer with no time wasted.
2. “How much profit have you made over the last five years?”
Many businesses have experienced a decline in sales and annual revenue due to the pandemic and created some motivated sellers. The numbers from the last two years may not be a solid indication of the business’ long-term prospects of success, so gathering financials related to how the business performed before and during the pandemic can help you evaluate the opportunity.
3. “How did you determine your asking price?”
Business owners can be emotionally connected to their business, especially if they are selling because of retirement. Years of time, money, and hard work have been put into it and letting go is difficult. For that reason, the seller may have an overpriced listing.
Ask the seller how they arrived at their price point. You can also use BuyAndSellABusiness.com’s free valuation calculator.
4. “What is the business’ main source of revenue?”
A business can have income from different sectors, but the main source of revenue is important to identify. If the previous owner has steady cash flow, it’s a good sign that their current strategy is working. Figure out the main source of revenue and analyze if it will continue, unchanged, with you as a new owner. Also, bonus points go to businesses with recurring revenue and revenue that is diversified.
5. “Is there a marketing plan in place?”
A solid marketing plan is crucial. Your social and digital presence plays a huge role in shaping your brand which is one of the keys to building your business. In some cases, no marketing plan may be better than a poor marketing plan, because then it allows you to start from scratch.
Buying a business is a big responsibility. These five questions will help you lay a solid foundation on your new entrepreneurship journey.
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Opinions expressed here by contributors are their own.
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