Purchasing a business is a big decision – and it’s important that you’ve thought through all of the details ahead of time. Here are five particularly important questions to consider. As always, we highly recommend that you speak to an experienced business attorney who can help you evaluate the specifics of your transaction before you proceed!
- Why is the current owner selling?
If there’s some deep dark secret reason for the owner to be selling, he’s not likely going to bring it up, but you’ll still likely get a sense of whether it’s something the seller is uncomfortable about if you ask the question. If the seller is parting with a business that he or she really loves, that will probably be obvious too. Bottom line: if you can’t identify a legitimate reason why the business is being offered for sale, proceed with caution.
- Is the seller going to finance part of the sale?
There are plenty of legitimate reasons why a seller may NOT want to participate in the financing, but a willingness to do so indicates a confidence in the business’s future. Does the seller plan to stick around to help you get started with the business? This is another sign of confidence on the seller’s part. A seller who is obviously anxious to get far away from the business as quickly as possible is a red flag.
- How did the seller determine selling price?
Is the selling price partly wishful thinking, or does the seller seem to have some real sense of the fair market value? Has the business been valued by a professional firm? Is there room for negotiation?
- Can the business run without the owner?
If the business you’re going to purchase can’t function without the owner’s personal attention, you’re taking a significant risk by taking over. For example, if the primary customers of the business are also personal friends of the owner, what makes you think they are going to stick around once he’s gone? If only the owner has the know-how and ability to perform key functions in the business, how will you keep it running without him? Hint: ask the owner when he last took a vacation and how long it was. If he or she has never taken a vacation… that’s a possible red flag that the business is too dependent on him or her!
Buying a business is a very big deal. It’s important to perform your due diligence ahead of time. Give us a call today at (305) 431-5678 to learn more!
