4 Questions You Should Ask Before Buying a Business

what to ask before buying a business

Source: www.entrepreneur.com

If you’re considering buying a business, proceed with caution. It may be the opportunity of a lifetime, or maybe lead you to financial disaster.

Here’s 4 things you should know before buying a business:

1. Why is the current owner selling? Is the owner retiring or selling for personal reasons? Perhaps the business is thriving and has a strong customer base. Yet, perhaps the business is relying upon a technology that’s on its way out. Remember the rise and fall of movie video stores? There may be a variety of factors why the owner has decided to unload his business. Get the facts.

2. What do I know about this industry? If you’re buying a restaurant, you better know something about the industry or the specialty niche it serves. There may be barriers to entry that will hinder competition. Or, there may be barriers to exit that will keep competitors in the industry even if they are not profitable. Do you know how to operate a business such as this and make it profitable?

3. Why should anyone buy from them instead a competitor? Do they have superior products or services? This answer should be easy. If you don’t see any reason why this business stands out over its competitors, then perhaps you have a plan in mind. The business may have untapped potential that the current owner never pursued. This could be your golden opportunity.

4. Do I have a plan to improve the business? Do you think you can run the business better than the current owner? You should have a business plan or some sort of strategy in mind as to how you would grow the business, increase sales and profitability. Again, this business may have untapped potential. This is where your creativity and good business sense comes into play. This is also an opportunity to consider whether or not this business is really right for you.

Buying a business can be a very rewarding opportunity. But it pays to plan ahead and do your homework. For more information on buying a business, download BizBuySell’s free Guide to Buying a Small Business.

“Purchasing an existing venture can be very rewarding, or it can be a nightmare.”

1 Comment on 4 Questions You Should Ask Before Buying a Business

  1. Randall Airst // April 17, 2015 at 6:04 am // Reply

    Great topic. Just wanted to add a few thoughts on real estate related issues.

    The buyer must analyze the real estate separately from the business. If the premises are leased, carefully examine the lease agreement for these types of issues:

    1. Assignment. Many leases cannot be assigned without the prior written consent of the landlord. Without such consent any assignment is void, whether or not the landlord accepts rental payments from the assignee. Review the assignment provision carefully, determining whether the landlord’s consent is required. If there is such a requirement, what type of discretion does the landlord have in approving or rejecting an assignment. Some leases allow landlords to reject an assignment “in their sole discretion”, while others prohibit the landlord from “unreasonably delaying, withholding or conditioning consent” to an assignment. With this information in hand, assemble financial and operating information for the landlord to review in making its determination.

    2. Term of Lease. The buyer must determine the length of time required to earn the desired return on investment. This isn’t a simple case of the longer the better. What if the business meets unexpected challenges? It may be preferable to have reasonable term (e.g., 5 years), followed by a series of options which the buyer/assignee can exercise. Negotiate for the right to pursue amendments to the current lease. Such amendments can make the business more valuable, and tailor terms to your needs. If current term and options work for you, make certain that the options are not “personal” to the seller. If they are, such options would expire along with the assignment.

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