Questions Asked by Smart Buyers...

I see all kinds of buyers in my work representing sellers of businesses in the Triangle market.  

People have different reasons and contexts for buying businesses; some buy for the lifestyle or passion of the project, but most buy for the cash flow.  Buried behind the profit and loss statements are some clues to how the business really “works.” These are some insightful questions that smart buyers have asked when evaluating a business or during due diligence…

Questions about the Finances:

Can you justify these adjustments between what’s on the tax return and what the owner has represented that he/she takes home?

Are these “one time” expenses really unlikely to happen again?

If this business makes so much money, why are the retained earnings negative on the balance sheet?

What are these entries from other companies listed in the general ledger?

How consistent has the cash flow been over the last few years?

How come the margins of profitability fluctuate so much by quarter or by year?

You are forecasting sales for the remainder of the year but does that take into account the fact that you just got through your busiest time of the year?

Questions about the Operations:

How much does the owner really work?  

Are their other family members or friends who are volunteering in the business?

Are there any special relationships that the owner has that are vital to this business’s continued success?

Is this companies “intellectual property” protected or could I figure this out myself?

Could the real reasons why the seller wants to move on affect my willingness or ability to run the business?

Do you have any key personnel that wanted to buy the business?  If so why aren’t they buying it, and how would they feel about me running the company?

Are all of the employees worth keeping?

Are there agreements that you have made with the employees that aren’t written down, like time off they are expecting?

Are there any Workers Comp claims in process or recently resolved that any current employees are involved in?

Questions about the Business Model:

If this business is so great, why would you sell it?

What have you tried that didn’t work?

What are the most natural expansion opportunities for the business?

Who are your closest competitors and why are you better?

What is your relationship like with the Franchisor?

Is this business a trending business (like frozen yogurt) that could be past its prime?

Can this business continue to grow in the new digital economy?  Could an “app” replace it?

What would you do to grow the business if money wasn’t an option?

Questions about the Space/Location:

Do you know of any “Master Plan” development issues that could help or hurt this location or the ability to secure a long term leasehold?

Have you asked the landlord if they would sell the property to you or a future leasor?

If I wanted to add future products/services, what are the restrictive covenants for this space?

Has there ever been an environmental survey done on the property and did it pass?  (For gas stations and other businesses involving chemicals.)

How is the anchor tenant doing?

Buying a business is much like buyer real estate in that it’s “Caveat Emptor” (Buyer Beware).  I represent sellers but I encourage buyers to utilize professional assistance in the form of qualified attorneys and accountants to guide them through stage of vetting a business for acquisition.  I do help sellers discover the answers to these questions before taking a business to market, as part of the role of a business broker is to be proactive, anticipate such questions, and have great answers ready!

If you are considering the sale of your privately held business, contact me and let's start getting the answers you'll need to satisfy the smart buyer's questions...

Disclaimer:  This list is not intended to replace a legal, financial, or similar “Due Diligence” list.  

About the Author:

I sell other people's businesses and blog about building value in businesses. I'm a Certified Business Intermediary (CBI), an Accredited Business Intermediary (ABI), a Board Member of the CVBBA & Better Business Bureau of Eastern NC. You can connect with me @Neal_Isaacs.

About VR Business Brokers:

Since 1979 VR Business Brokers Has Sold More Businesses In The World Than Anyone and VR Business Brokers of the Triangle has deals dating back to the 80's right here in the NC Triangle market. Follow VR Business Brokers on Twitter at @VRbizTriangle or on FaceBook.