7 Basic Questions to Ask Before Buying a Business

Depending on your situation, there are beneficial reasons for buying a business.

It works for a person lacking business-ownership experience but who has management expertise, as well as for a veteran business owner.

Perhaps you’ve been laid off, or you’re tired of working for a boss.

business discussionsWith sufficient experience as well as training from the seller, you can create a new career.

If you’re a veteran businessperson in a new city, you might want to consider buying a business for immediate income and reputation in the community.

You want to buy out the competition to grow your market share.

You want to multiple your revenue streams, and a new business fits nicely with your expertise.

Just remember you’ll want a situation in which you run the business — you don’t want a business to run you. Get off to a right start by taking precautions.

Consider seven questions

1. How is the business positioned? It should be the right environment. The business should have the right infrastructure such as operating procedures; licensing; excellent branding, a great Web site and social media; established income; not too many competitors; and the right location or locations (see Due-diligence Tips to Pick the Best Business Location).  

Use a sounding board. Get the right input from a mentor or other professionals to advise you. For example, they can help you review the seller’s representations and with designing a letter of intent to buy with contingencies — if you discover problems, you’ll want to be able to reduce the sales price or walk away from the deal.

2. Does it have positive financials? Don’t assume you’ll start with positive cash flow. With your financial advisor, analyze the tax returns and financials for the last three years.

You need to make certain that the financial ratios are favorable, and the numbers cover all your financial bases (see Financial Tips for Taking the Plunge to Buy a Business).

3. Pricing and financial terms? Make sure it’s a do-able situation for you and allows for contingencies. Decide whether it’s best to have investors, bank, SBA or seller financing.

Avoid a seller who has a strong emotional attachment with the company. Typically, such a seller has an unrealistic idea about the company’s worth.

4. What about goodwill and relationships? Obviously, you’re buying a business to avoid all the start- up hassles — from buying equipment to attracting customers.

After checking out the financials, remember your due diligence on goodwill and relationships. Make certain the company has a stellar reputation with all stakeholders –from the community and neighboring businesses to vendors.

5. What about the human capital — employees? Hopefully, you’re getting a veteran, knowledgeable team-minded staff with great soft skills. Such employees are likely to welcome your management style.

In turn, you have to make sure you develop good relationships with them and get introductions to your new clients or customers. You don’t want a situation in which customers are more loyal to employees than to your business.

6. Negative covert issues? Be sure you’re not buying a lemon. Spend time in the business.

There’s a myriad of issues that can be submerged from view such as problems with the building, the landlord, hidden debts, financial status of big customers, staff morale or workplace culture.

7. Trends and prospects? You’ll want a business in an industry with good prospects in a sector with long-term growth potential.

From the Coach’s Corner, related content:

Buy a Business to Grab Market Share but Study 10 Financials — One of the fastest ways to grow is to buy a competitor or to acquire another business. But you must exercise due diligence in 10 steps.

The 22 Dos and Don’ts for Successful Negotiations — No matter what you need to negotiate, there are easy strategies to get anything you want. But you must first remember it’s important to reach a fair compromise – with win-win negotiating skills. You’ll want both parties to feel positive after the negotiation is complete.

Great entrepreneurs focus intensely on an opportunity where others see nothing.” 

-Naveen Jain


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Think About 9 Key Questions Before You Form a Partnership

Sure, there are good reasons to partner in business. A business has more flexibility with more than one owner. Also, two or more partners can help accelerate a company’s growth.

But it can also be a hindrance, especially when there isn’t unanimity on business issues. If you find someone with whom to partner, it’s best to put an agreement in writing.

There are partnership options. General partnerships are operated by the partners. In general, a corporation or a limited liability company (LLC) is run by representative management – people who are either appointed or elected.

business discussionsThe majority partner is someone who owns more than 50 percent of the company. In the event of a dispute or disagreement, the majority partner rules.

Sometimes, grateful owners decide to give high-performing employees or trusted family members a minority stake in the company.

But I’ve seen cases where such decisions go awry when owners were too trusting and failed to see flaws in the employee or fail to take precautions to prevent embezzlements.

Not to over-simplify, before you create a partnership here are nine questions for which you need answers:

1. Are you thinking clearly?

Don’t make such a decision when you’re feeling lonely or under financial duress. Perhaps all you need are management strategies for a successful turnaround.

2. Do you understand your motives?

Know your business needs and those of the other person – really know the other person.

3. Do you have the right legal help?

Again, you must have a bullet-proof legal agreement. a good tax accountant or CPA, insurance agent and an attorney.

Their talents and skill levels are crucial for your success. Before forming a partnership, you must have the right attorney.

4. Will the prospective owner pay for the privilege?

I’ve had hardworking and highly educated people want to become a partner in my established business. Even if I had been convinced to accept their proposals, they weren’t able or willing to pay for their equity.

The majority partner is someone who owns more than 50 percent of the company. In the event of a dispute or disagreement, the majority partner rules.

5. Do you need a partner to succeed?

You must decide if another person will complement you well because they have skills you need for success.

6. Does the person have a strong drive, integrity, skills, health and same approach about money matters?

Too often, prospective partners fall short of the mark in these qualities.

7. Is the person otherwise compatible with you?

Opposites attract, which isn’t necessarily bad. An entrepreneurial life can be a roller coaster in emotions. You have to know if you can work with the other person in all situations.

8. What would be the exit strategies?

Decide what will happen if you or the other person decides to quit the business or if you decide to sell the company.

9. Is the prospective partner a friend of yours?

Just as it isn’t a good practice to hire friends, that’s also true about partnering with friends.

From the Coach’s Corner, here are some related resource links:

Partnerships — 7 Steps to Avoid Fights over Money — When a business has cash flow issues, a key issue that comes up every day is money. As a partnership, you have a shared responsibility to discuss issues on principles without arguing in an ad hominem manner. Your company is doomed if you ever attack your partner’s character or sarcastically belittle the person’s traits. It’s an unproductive way to try to undermine your partner’s argument. Neither party wins. Whenever there are arguments, it’s important both persons clean off their street. No person is always 100 percent right.

5 Reasons for a Strategic Plan and its 6 Key Elements — Are you ready to compete? Is your company like many that need to rethink their strategic plans? There are five reasons to create strategic plan. It has at least six components. Cash flow for companies is a common problem. Some businesses have grown too fast. Others have fallen short in due diligence. Many failed to plan for a roller coaster ride. Here are the strategic planning tips that work for nonprofits and businesses.

12 Tips for Profits to Keep Your Business Dreams Alive — Most businesspeople agree the economy continues to be challenging. Signs of a lingering downturn are everywhere. Business activity is slow. Governments at all levels report low tax revenue and are restructuring, and not spending. On top of it all, customers want you to cut prices. With a high level of oversupply in many industries, high unemployment and reduced customer spending, many businesspeople face a highly competitive environment.

15 Quick Tips for Profitability in the New Economy — First, it’s important to accept the facts. The new economy – challenging times – is here to stay. A business should perform like a championship sports team. That means protecting your turf while aggressively pursuing new opportunities, and making full use of technology. For new or existing businesses, here’s a checklist of strategies.

Profit Drivers – How and Why to Partner with Your Employees — If you want maximum profit, consider partnering with your employees. “Key employees – in fact, all employees – will be more valuable to a company if they understand what drives profit and improves cash flow for the business,” says leading financial consultant Roni Fischer. Ms. Fischer explains typical obstacles to profit

“People that pay for things never complain. It’s the guy you give something to that you can’t please.”

-Will Rogers


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Seattle business consultant Terry Corbell provides high-performance management services and strategies.