You’ve just stumbled across a business that’s for sale. Maybe it’s been your lifelong dream to buy a small business. Whatever the reason, now you’re left with a whole lot of questions that need to be answered. The questions you ask the business owner may be the difference between a successful sale and one that leaves you wishing you never bought the business in the first place.
Here are some questions that you should always ask before buying any business:
Why are you selling the business?
The reason why the person is selling the business is a big deal. It will also tell you how honest the person is. If the person tells you that they’re selling the business because they want to retire and they’re 30 years old, you know something is fishy.
What you’re looking for here is an answer that makes sense. Maybe you’re buying a small ice cream shop, and the owner is just way too busy with his family and everything going on in his life to run it. Sometimes, business owners get in over their heads, and they might be so far in debt that they have no choice but to sell.
Sometimes people want to sell their business because they want to cash out and make a profit. The reason why does matter, but what matters more, is if the seller is being honest about why they’re selling the business.
How financially healthy is the business?
We’re talking profits and profit margins here. Are they making any money at all? How much debt is the business in? What is the time frame for when the debt will be paid off? A business may look great on the outside, but on the inside, it’s rotten to the core. Some small business owners have no idea what they’re doing, and they think they’ll fake it until they make it. The problem is, they never make it, and the bank will only allow you to fake it for so long.
If you have a knack for bringing businesses back from the dead, a business that is in poor financial health may be a great opportunity for you if the price is right. The goal here is to buy a business that’s about to go under for a good price and nurse it back to health. Who knows, you might even be able to flip the business for a healthy profit if you do everything right.
What are the terms of the sale?
The fine print is what you’re trying to get to here. What do you get if you buy the business? You do get all the inventory, the building, and everything that goes with it? Maybe all you get is the name of the business and a list of clients. You don’t want to go into a sale without knowing exactly what you’re getting when you buy it.
There might be a little wiggle room here if you want to sweeten the deal a little bit. You might be able to squeeze a little more inventory or equipment out of the seller if you play your cards right. Anything you can get extra will only help your bottom line in the long run.
Who are your competitors?
What businesses are you in direct competition with? The business owner will know this information, but you should seek out answers yourself. A quick online search will tell you, and if you’re familiar with the area, you probably already know who the competitors are.
Knowing how much your competitors are charging is also important. Don’t shy away from going into your competitors’ establishments or reading reviews online about them. You can’t get too much information when it comes to the type of business your competitors are operating.
Are you willing to negotiate your price?
If the price is set in stone, be a little leery. It’s weird that someone wouldn’t be willing to go down a little bit. If the seller knows anything about business, they’ll know that you’re not going to pay what they are asking. Business owners should expect a little dickering back and forth to get the best possible.
Lowballing in this situation isn’t a good idea because it will make the business owner think that you’re not serious. Throw out a number that is a little on the low side to let them know that you’re serious, but also test them to see how they respond. If they don’t budge at all, at least you tried, and now you’ve got to decide if you want to pay the full-blown price.
Conclusion
Asking the right questions is vital if you want to not get screwed when buying a small business. It’s easy to fall in love with a business because it has all the bells and whistles that you’ve been dreaming of. However, if the business isn’t what it’s cracked up to be, you could end up losing out big time if you buy the wrong small business.
