The 49 Essential Questions to Ask When Buying a Business

by Brandon Boushy
The 49 Essential Questions to Ask When Buying a Business

Wouldn’t you like to boost the chances that a business you purchase is a lucrative cash cow instead of a money pit?

You want to make a good decision, and there are essential questions to ask when buying a business.

Budding business owners often buy a business without asking the right questions to become successful. You want to ask questions that reveal all the red flags and minefields that could cause the business to blow up in your face six months later.

We’ll discuss questions to ask yourself before and after approaching businesses and questions you need answered about any business’s history, finances, and the management of the business venture.

There’s a lot at stake here. So, sit down and come up with an exhaustive list of questions to ask that’ll elicit the exact information you need. Equally important, write down the answers you receive so you have this knowledge when you most need it.

Buying an existing business checklist

Top-down shot of a checklist at a workspace next to a laptop, notebooks, pen, and a potted succulent

There are so many questions to ask before buying a business involved in any industry. You should probably have a checklist with you to verify that you have successfully asked all the due diligence questions to ask when buying a business. Download our buying a business checklist.

Ask yourself before buying an existing business…

1. How will the business further my goals?

You should have a reason for buying the business. Are you trying to acquire technology, customer lists, and employees or achieve other goals?

This question should impact how you evaluate every decision. If an answer doesn’t align with this goal, you may need to ask clarifying questions.

2. Is it better to start a new business instead of acquiring a business?

Do a sanity check before you go and buy a business. You don’t want to buy a business that’s a mess if you can save money by, for example, buying the equipment you want and starting your own business yourself.

3. Can you afford to buy the business?

Business partners sitting down with a laptop and paperwork discussing whether they can afford to buy a new business

You’ll need to establish whether you can afford to buy the business. You’ll have three options as a purchasing business owner:

  1. Buying with cash on hand
  2. Seeking a business loan
  3. Offering the current owner an equity deal

Analyze your current cash flow and figure out how much money you’ll be able to spend on the business. Make sure you have enough money for the down payment. It’s usually 10 to 20% of the purchase price.

Then, come up with a price tag and stick to it.

Pro Tip: Eager to buy a business but need more help? Bookmark our comprehensive How to Buy a Business With No Money guide.

4. Can your business manage the acquisition?

If you already own a business and are planning a merger, know that a business purchase can be disruptive to business operations. It takes management time away from both small business owners, and key employees from the newly acquired business will take time to acclimate to the new company culture.

5. Will the two cultures blend well?

Business owner and a consultant reviewing information on a tablet

Similarly, if you already own a business and want to grow by buying another, as a new owner, you’ll need to consider how the management team and employees of each organization will work together. Cultural differences can create real problems when you buy businesses.

6. What third-party consultants do I need to hire?

A business owner may need consultants when buying small businesses. You’ll probably need:

  • Contract lawyers
  • Financial analysts
  • Auditor
  • M&A marketing strategists
  • Cultural consultants
  • Human resource experts

7. Is this the best company to purchase currently?

Before buying a company, make sure that it is the best business to achieve your goals.

Keep reading for more questions to ask when buying a business.

Questions to ask a business owner about its history

QuickBooks blog post on tax forms, schedules, and resources on a desktop computer

You’ll want to know about the history of the business you’ll be buying. An honest business owner will talk about the mistakes the owner made during the business’s history. Hopefully, they’ll share valuable pointers on how to avoid making the same mistakes during day-to-day operations.

That’s why you should ask these questions about business history.

8. Why are you selling?

You might learn about recent problems the owner is having. The beauty of this question is that it’s blunt and might tell you exactly what you need to know.

However, you might get an answer like “I want to retire” or “It’s time to see the world.” Although these answers can be truthful, business owners frequently use them to cover up red flags when buying a business.

That’s why it’s up to you to dig deeper to uncover why the business owner is looking for an exit strategy. Sometimes, you’ll just have to trust your intuition.

9. How long have you owned the business?

Woman business owner in an apron with boxes, shelves, and a laptop in the background

When a current owner has operated a business for a long time, you’ll probably be buying a company with a loyal customer base and brand recognition.

Past longevity is an excellent indicator of business success. So, if the proprietor has been in business for three decades, you’re probably purchasing a valuable asset that’ll continue to be a cash cow for you, too.

10. Why did you originally start or buy the business?

This question helps establish the mindset of the current owner. It might also show differences in motivations that could be impacted if a company grows.

Keep reading for financial questions to ask when buying a business.

Questions about the company’s finances

You’ll want hard financial data, right? Here are some questions to ask to get the numbers you need:

11. What’s the annual gross revenue?

This will tell you how much money you’ll be able to pull in with the existing business. But probably even more important is the next question…

12. What are the ongoing costs?

This business question will help you establish how much working capital the company has.

Asking this question and the next one together can be a good way to establish how well the business owner manages its financial statements.

13. How much profit have you made over the years?

Daily calendar next to stacks of hundred dollar bills

Look closely at these figures. High gross revenues and low profit margins indicate high overhead—which is either a red flag or an opportunity.

14. What is your profit margin?

While this may seem the same as the last question, you want to ask questions differently to see if you get consistent answers.

15. Will I be taking on any liabilities?

When you are buying a business, you could also be picking up undisclosed outstanding debt. This could significantly jack up what you’ll pay. That’s why it’s so important to ask about legal obligations!

Any legal obligations and liabilities you will not assume need to be paid off before closing. Don’t let the owner say he’ll pay them off later because the legal doctrine of “successor liability” means you become liable after business purchasing.

Pro Tip: A better way to handle liabilities is to subtract them from the offer you make when purchasing the business from the previous owner.

16. Can I view the cash flow statements?

Once you start seriously considering buying a business, you’ll want to get the financial statements verified by an independent auditor.

This individual will scour the books with a proverbial fine-tooth comb to confirm that what the owner told you is the truth.

And if your auditor does their job right, they’ll leave no stone unturned.

Questions about selling price

Young man with disheveled hair looking up toward a thought bubble with a dollar sign in it

Ask questions that’ll help you get to a more precise determination as to how much the small business is worth. This information will help you pay a reasonable price for the company so you’re not swindled. If you overpay, this could leave you in dire financial straits, which could ultimately lead to the failure of your business.

Questions to ask about price include:

17. How much are you asking?

Try to get at least a ballpark figure for how much the owner wants. This will let you know if proceeding to the negotiation stage will be worth it. The price should be no more than three times the annual profits.

18. How did you arrive at the purchase price?

Again, this is the kind of question that’ll give you a little peek into the mind of the owner. Listen carefully, and then decide whether you think their answers are trustworthy.

19. What assets am I getting?

Man unloading boxes from a work van surrounded by social media icons including Facebook, X, Instagram, and YouTube

This includes both tangible (things like delivery trucks, cooking equipment) and intangible (goodwill generated, social media accounts) assets of the existing business. You want a comprehensive inventory of every single thing you’ll be getting in the sale.

20. Have you ever had the business appraised by an independent auditor?

An independent appraisal will give you the best idea of how much you should pay. So, if one hasn’t been performed, you should think about having it done before you buy. This way, you’ll know the value of the business you’re thinking about acquiring.

21. How much access will my auditor have to your books?

You’ll want to make sure that you or your financial professional can look at the business’s financial statements for the last three to five years. These include tax returns, income statements, balance sheets, cash flow statements, and any current contracts or leases. If you’re going to have an independent auditor look at them, make sure you hire a reputable one.

While it would be nice to trust a business’s own financial analysis, it’s best to be sure the statements have been vetted by accounting professionals. If the owner refuses, he may have something to hide. In that case, it would be best to just walk away from the deal.

22. What do you think the goodwill value of your business is?

There might be a lot of intangible things that go into the owner’s personal valuation of their existing business that the hard financial data won’t reveal. These include things like the reputation of the company, customer lists, and employee expertise.

Questions about financing

Man in glasses and a casual sweater sitting at a desk reviewing financial paperwork with coins flying overhead

The following questions will help clarify your financing options:

23. Are you willing to finance the transaction yourself?

This will indicate whether the owner believes in you and the small business. Seller financing usually covers 10% to 25% of the purchase price of a company. It can be used to add to a down payment.

If you can get your seller to put some money on the line by financing the sale, it might serve as an indication of the seller’s confidence in the future of the small business. They know more about the business than you do, and if they’re not willing to gamble on its success, why should you?

24. What financing options do you recommend?

The current owner might know sources that you don’t know about. It doesn’t hurt to ask!

25. Are you willing to take a standby position?

Most small business loan lenders loans insist that sellers take a standby position for about two years. This means the seller won’t receive any payments during that time. If your seller won’t finance the entire transaction, find out if he’d be willing to take a standby position so that the rest of the deal can be funded.

Questions about day-to-day management

Casually dressed woman business owner jotting a note while holding folders and steno pads

Devise a series of carefully written questions to ask that’ll help you figure out how the small business generates revenue and how it’s run on a daily basis. The better you understand all this, the more confidently you can operate your new business. Businesses with a steady revenue stream are the safest bet.

Ask questions like:

26. How does the business generate revenue?

You’ll want to know how you’ll get paid—whether that’s a one-time payment, through a subscription, or some other means. Some businesses have unique ways of generating revenue that might not be familiar to you.

27. Does the business have a list of profitable clients?

If the small business you’re thinking about acquiring has one, ask to take a look at it. This list could be a goldmine for you, making it one more reason to buy the small business.

28. What’s your marketing plan?

Screenshot of Fortune article on creating a marketing strategy for small business

Ask the owner what kind of marketing he’s done in the past—and what worked and what didn’t. This way, you’ll get valuable feedback on the marketing that’ll get the most bang for your buck.

29. Exactly how many hours do you work each week?

This is an indication of how much of your time your business will eat up. Even the most die-hard entrepreneurs will want to get away once in a while. So, find out how often the current owner was able to get away. You want to know what you’re getting yourself into!

30. Are you currently paying yourself?

If the owner isn’t getting paid, this is a red flag. You want your venture to generate enough profits that you can draw a salary.

31. How quickly does the business get paid for services and goods?

Stacks of quarters next to a white alarm clock

If there’s a time delay between the delivery of merchandise and payment, there might be a supply chain problem. You might want to take a closer look at that before you agree to buy the business.

32. Can you stay on for a short time to ensure a smooth transition?

Buying an existing small business isn’t like making other large purchases. No matter how much you know about what you’ll be selling, there’s probably going to be at least a bit of a learning curve. That’s why it would be great if the owner could stay on for six to 12 months to help you learn the ropes.

33. Who are your competitors?

Many businesses fail because they don’t meticulously study their competition. You need to know your competitors inside and out so you can effectively compete against them after buying a business.

34. How much of the success of the business is due to the owner’s personality?

Smartly dressed business woman standing in front of a cityscape

If the answer is “a lot,” you might think twice about buying this business. That’s because this is something that’ll be hard to replicate, even with hard work.

35. May I talk to customers, employees, suppliers, and others to independently verify the information I’ve learned from you?

You need to get your information from secondary sources—not just the owner. This way, you can make sure it’s as accurate and truthful as possible.

36. Do you have any tips on how to make the business as successful as possible?

This question will help the owner formulate in his mind precisely what he’s done over the years to make his business successful. The answer might result in valuable information you can replicate so that you’re successful, too.

Miscellaneous questions

Woman in a casual orange sweater and jeans with a thinking face holding a tablet and surrounded by question marks on a blue background

37. What licenses or permits will I need to get?

You’ll want to make sure you comply with the law. Also find out how many of the current owner’s licenses and permits will transfer over to you.

38. Are there any pending lawsuits?

If legal matters are hanging over the business’s head, this is definitely a red flag. Issues like that can quickly drain you of your financial resources.

39. Are you a member of any industry organizations?

If they are, ask which memberships have been the most beneficial for them, and don’t hesitate to ask for introductions.

Additional questions to ask yourself

List of other questions

Also, put yourself in the hot seat and ask yourself some probing questions, like:

40. Is this the kind of business that’ll bore me to tears a few months in?

Purchasing a business because you’re bored isn’t a good reason. Get a hobby instead. Running a business can be tedious, and it definitely is hard work.

41. Is my significant other going to be supportive?

For better or for worse, being an entrepreneur is going to affect your relationship with your spouse. They will be going along for the ride, whether they want to or not. Have a frank discussion to make sure they’ll be able to put up with you working long days.

42. How can I improve the business to make it more profitable?

Man in a suit with a question mark hovering overhead staring up at stacks of coins while scratching his head

This is one of the most important questions to ask when buying into a business because it will ultimately tell you whether the asking price is worth paying. The more you can help the company grow, the more valuable it will be when buying small business operations.

43. Do I have the skills for success?

Take a good look at your professional repertoire and make sure you have the skills you need to make the business you’re thinking about buying a resounding success.

For example, if you’re buying a restaurant, it’s a darn good idea to have some experience actually working in one beforehand.

44. What kind of financial picture do the financial documents paint?

Take a look at all the financial documents with your certified financial professional. These are things like the tax returns for three years, balance sheets, and cash flow statements.

Then, decide whether the business is fiscally healthy enough to make purchasing it a sound idea.

45. How much have similar businesses recently sold for?

Sold sign next to wood block storefronts

To get this information, visit local county offices to see which commercial properties recently had a change in ownership. There are also online resources that can help you find this information.

46. Do I really need financing, or can I find creative ways to do an all-cash deal?

There might be some circumstances under which an all-cash deal makes sense. However, consider the following question, too…

47. Is an all-cash deal even a good idea?

Few buyers can afford an all-cash deal. Even if you could, incurring that level of risk might not be for the best.

48. Have I come up with a business plan I can show to potential lenders?

UpFlip’s How to write a business plan blog post on a laptop

A business plan shows that you’re serious about your business. It’ll also reveal how feasible it is. These are two things potential lenders are going to want to know.

49. Will I keep all the employees?

Try to figure out which ones will be indispensable assets to the business and try to sweet-talk them into staying. It’s also a good idea to meet with the employees once it looks like the sale’s going to happen. Make time to answer any of their questions regarding your future plans for the business.

Don’t forget to download our free checklist

Download our free business buying checklist if you haven’t already.

How to buy an existing business

Woman reading UpFlip’s how to buy a business blog post on a tablet

The questions to ask when buying an existing business are part of the due diligence process that will be conducted as the purchase unfolds.

The process of buying a business includes:

  1. Find a business to buy
  2. Determine your budget and financing options
  3. Perform due diligence
  4. Establish business value
  5. Create and enter into a business sale agreement

Check out our blog about buying businesses for more information.

Are you ready to buy a business?

If you’ve had a lifelong dream of buying a business, asking the right questions can make all the difference when buying a new business venture. The best way to know what questions to ask when buying a business is to come prepared with a list, which we provided for you.

Don’t let either the owner or yourself off the hook.

You’re buying a business that will be a significant investment of time and money. Asking the right questions will help you to get a business for a fair price, prepare you for the difficulties of ownership, and ensure your long-term success.

So, before you buy, download your free list of questions. You don’t have to limit yourself to the questions we’ve prepared. Modify the list as you go!

Which of these questions are most beneficial for getting the information you need to make a decision? Let us know in the comments!


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Author

Brandon Boushy

Our lead writer, Brandon Boushy, has been a business consultant, business owner, and marketer since 2017. Brandon is committed to the pursuit of knowledge and continuous improvement. He measures his success based on how many business owners he helps succeed. Brandon started Raising Daisy Photography in 2017 with Stephanie MacIver. His role was focused on marketing, estimating, and managing customer interactions. He is also a freelance business researcher and has provided over 3,800 hours of business research for more than 50 clients. His blogs are read by over 2 million people every year. Brandon told us: "My motto is never quit learning. I bring this motto to everything I do, and find writing the best way to help share the data I obtain to assist business professionals pursue their dreams." He empowers companies to improve their communication and brand awareness through creative content strategies and blog writing.

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Comments

Haret@ 2023-12-03 01:14:16

I really admire how you writer

Sebastian@ 2020-06-22 23:29:12

Buying businesses can be very risky, you just don't know what the future holds. These questions are a great way to evaluate a business and plan for the future ;) Thanks

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