Buying an existing business can be a quick and effective way to enter a new business venture. However, this means taking on the operations, processes, and finances that another small business owner has established. Due diligence is essential for protecting your investment. If you ask the seller the right questions, you can easily establish a quality start to your business ownership journey.

You can learn more about buying an existing business by downloading a free copy of the BizBuySell Guide to Buying a Small Business. Use the BizBuySell Find a Business feature to find small businesses you might want to buy. For info on how to sell your company, see the BizBuySell Guide to Selling Your Small Business.

Questions to Ask Business Owners When Buying an Existing Business Opportunity

See these 50 questions to ask when looking for a small business for sale. Ask these questions of the seller, broker or lender before taking the plunge and moving ahead with the sale.

Preliminary Questions for the Seller or Broker

Researching an existing business should start with questions prior to an actual sale agreement. Business owners should generally be willing to discuss the following with you as they prepare to sell.

Why Do You Want To Sell?

Often, business owners simply want to sell to retire or focus on other ventures. However, some may not be willing to put in the time commitment or monetary investment to grow. Knowing these factors can help you determine if the business is a good fit for your lifestyle.

What’s Your Asking Price — and Why?

The asking price is an essential piece of information, both because you need to know if you can afford it and if the company is a good value. Even if the price of company fits within your budget, question the seller to find out why they feel the business is worth that number.

How Negotiable is the Final Purchase Price?

Some small business owners may set a price that’s firm. Others may be willing to negotiate. If a company is just outside your budget, flexibility from the seller can keep them on your radar.

Would You Be Open to Seller Financing?

This happens when the buyer essentially borrows some of the money to purchase the small business directly from the seller. This can be a good option for buyers who don’t qualify for bank loans.

Ask the Seller About the Revenue Stream

Finances are an essential element of buying a business. These questions can give you a full picture of this part of the company.

What are your Total Revenues Annually?

Total revenues should include all earnings from the past several years. These should be easy enough to obtain from recent tax returns or financial statements.

How Much is Your Operating Cash Flow?

Operating capital helps businesses cover expenses while bringing in more money from sales. Some wiggle room in this area can help you operate with more freedom.

Can You Share any Annual Cash Flow Statements?

It’s one thing to get answers from sellers. However, seeing income statements and cash flow for yourself may give you a full picture of the company’s finances.

What are Your Total Annual Sales?

This often goes hand in hand with the revenue question. But sales only account for the proceeds a company brings in from selling products or services to consumers, while revenue includes everything before expenses.

Ask About Potential Red Flag Issues

Certain questions may cause sellers to act suspiciously. If you notice an unwillingness to accommodate the following requests, it may signal that they’re hiding something.

Can I See Your Financial Statements and Balance Sheets?

A truthful seller should be happy to back up their financial claims with documentation. If they aren’t, things may not be as they seem.

May I Speak with Some of Your Employees?

If a business owner wants to portray their company as something it’s not, they may not want you talking with anyone who could dispute their claims. Team members are often uniquely familiar with a company’s daily operations. So information from them could give you a more full and truthful picture.

Do You Have Any Customers or Clients I Could Interview?

Similarly, speaking with members of the customer base could give you an idea of how the company operates. If the seller is unwilling to connect you with customers, they may be trying to hide certain elements.

What Can You Tell Me about the Business’s Annual Tax Returns?

Tax returns can tell you about a company’s finances and compliance. Some owners may not claim all income. And others may try to portray their finances differently when selling. If a seller is open about these documents, that generally means fewer financial risks for you.

Ask About Assets and Capital

When you buy a business, you also buy their assets. This may include a location, equipment, and money. Ask these questions to get an idea.

How Much Working Capital Does the Business Have?

This is the amount that is currently available to cover operating expenses. A nice cushion may help you stay afloat during hard times and grow during good times.

What Real Estate, if Any, is Included with the Business?

If the business operates from a physical location, it’s essential to gather specific information. Inquire about the property, its valuation, and any associated maintenance or other related expenses.

What Equipment, If Any, is Included with the Business?

Many also include equipment. For example, an office may own printers, servers, and phone systems. You need to know what comes with the business and what ongoing costs are associated with it.

What Vehicles Does the Business Own to Help with Operations?

Vehicles may also come with a business purchase. For example, a home service business likely owns trucks to bring techs to and from jobs.

What Furniture or Fixtures, if Any, Are Being Sold with the Business?

Furniture like desks, chairs, and reception areas may also be included. Be specific about what comes with your purchase, or you may need to make additional purchases.

What Inventory for Resale, if Any, is Being Sold with the Business?

Product based businesses may have a stock of inventory. Find out if this is being sold with the business or if you must purchase more stock separately.

Question Seller about Their Position in their Industry

Being established in an industry is a major factor for many who are interested in buying an existing business. Ask these questions to get a feel for how the company may already be established in the minds of customers.

What Brand Recognition Does Your Business Have in the Marketplace?

Brand recognition refers to the extent to which your target market is familiar with your name. If the current owner has made investments in marketing, it may require less effort on your part to promote your business.

What Market Share Does Your Business Have in the Industry?

Market share is a bit more specific. Find out how well your business performs in terms of sales and performance compared to competitors.

Who Are Your Biggest Competitors?

Check out your potential competition. Understanding the major players in your market can help you address them. This can also give you a picture of the industry as a whole.

What Makes Your Brand Stand Out?

A brand’s positioning can go a long way. Find out the competitive advantage a company has when marketing.

Check Out These Important Questions for your Lender

Financing can be a major benefit when purchasing an existing business. Ask these questions to get the best option.

Do I Qualify for a U.S. Small Business Administration Backed Loan?

SBA loans provide better rates and opportunities than many small businesses can get from large lenders. Your bank can help you determine if you qualify.

What Rate Do I Qualify For?

Whatever type of loan you decide to go with, your interest rate will make a major impact on your payment. Compare to find the lowest.

How Much Do I Need Up Front?

You may need to bring some upfront money to qualify for financing. Make sure this amount fits within your budget.

What Are My Alternative Funding Options?

Banks aren’t the only options. You may consider online lenders or seller financing to fill in the gaps.

Ask These Questions About the Management Team

The people who manage a business can make a major impact on its success. These questions can give you a feel for the team and culture.

What Is Your Management Structure?

Is the company split into departments? Is there a set hierarchy in place? Get to know these systems before purchasing.

Will the Management Team Stay in Place?

Some teams stay when a business is sold. Others may not. If this is an important element of your business purchase, find out the team’s plans.

How Involved Are You in Managing the Business?

The current owner might play a significant role in the management team, which could affect your own management style. Alternatively, if you intend to adopt a more relaxed approach, it may necessitate bringing in a new leader.

How Does Your Team Handle Management Challenges?

They are part of every business. If the team stays, find out how they normally handle issues.

What Changes Would You Make to the Management Structure?

This question may simply help you get to know the current situation. Perhaps the owner would rely more on their managers and be less involved. Or they might change how departments are structured.

Ask These Questions about the Company’s Biggest Challenges

You can’t anticipate every challenge as a new business owner. But understanding what they’ve dealt with in the past may help you greatly.

What Has Been Your Biggest Challenge in the Past Year?

Specifically, ask about recent adversities. Find out how they overcame this or if they expect it to continue.

What Does Your Team Do When Facing a Challenge?

If the team responds promptly, these situations can become less problematic. Are there established systems for handling issues such as customer service?

What Challenges Are You Currently Facing?

These may impact the early days of your new business. So find out beforehand to start off strong.

What Challenges Have You Identified Moving Forward?

If the current owner knows the industry, they may be aware of trends or issues that could impact the business’s future.

Ask About Day to Day Operations in Detail

Operations include the tasks you and your team handle each day. Get a feel for what you’ll be working on with these questions.

What Does a Typical Day Look Like for You?

Since you will be the new owner, it’s important to understand the current owner’s daily activities. While you might decide to make changes, some aspects may remain the same.

What Does a Typical Day Look Like for Employees?

Employees should also have a daily routine. Find out the things they work on regularly.

What Are Some Essential Tasks That Must Be Completed Regularly?

These encompass the key functions of your business. The response should assist you in organizing your plans more effectively.

What Systems Do You Have in Place?

Systems help you complete tasks more quickly. These may include tech tools or simple processes that employees work on.

Ask These Questions About the Business’s History

A strong history can be one of the major benefits of buying an existing business. Ask these questions to get a feel.

How Long Have You Been in Business?

A company with a long history may have strong community connections. One with a shorter lifespan may be more open to change.

How Long Have You Owned the Business?

Some owners may have been involved since the beginning. But others could have come in more recently. The answer may help you understand their exit strategy better.

What Has the Company’s Growth Been Like?

Has the company grown steadily, or has it been up and down? This may help you learn what to expect.

What Has Been the Biggest Factor in Your Success?

Learning about the company’s wins can help you focus on the most essential elements once you take over.

Ask These Questions as Part of Your Due Diligence

Due diligence is the period you get to research the business fully before buying.

May I Review Your Vendor Information?

If the business acquires supplies or inventory from a vendor, it’s important to understand these relationships, as they can affect your expenses and operations.

What Are the Company’s Current Contracts?

The business may have contracts with vendors, contracts, and partners. Learn about these and if they transfer.

Is the Business Involved in Any Ongoing Legal Conflicts?

Lawsuits or legal issues may complicate your ability to buy the business. Make sure the brand is clear before buying.

Ask These Other Miscellaneous Questions

These questions to ask when buying a business can fill in the gaps not covered above.

What Marketing Strategies Do You Use?

Find out what type of marketing the business has used. Which strategies have been successful, and which have not?

Do You Rely Heavily on a Few Major Clients?

Some businesses rely on contracts with a small number of large clients, which can create challenges if one of them decides to leave. Determine what percentage of revenue is derived from these few sources.

Do You Belong to Any Industry Organizations?

Industry organizations and local chambers of commerce provide helpful resources. If the business already has these connections, it may help you as you get started.

Does the Company Have Any Debts?

Buyers should ideally find out about debt while reviewing finances. But it’s worth asking about specifically since this can have a big impact on your bottom line.

Take a look at all fifty questions to ask for your next business purchase.

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This article, “Questions to Ask When Buying a Business” was first published on Small Business Trends