What to ask before buying a business
Thinking about buying a business? Whether you're just exploring the idea or are seriously down the path, Linda Purcell and Tom Gosche say there are questions you should be asking.
Lots of them.
Key among those questions is why the seller wants to sell; whether your skill set fits the needs of the business you're considering; and several pertaining to corporate culture.
The business buy-sell market seems to be reasonably strong, at least according to Purcell. "I'm getting a sense of the economy looking up," she says. "The prospect of fewer regulations (one of the Trump Administration goals) helps, too.
"But it seems to be taking longer to get everyone to the closing table."
Maybe the process is stretching out a bit because buyers heed Gosche's advice that they "really think this through. Buying a business is a major event," Gosche says. "There are a lot of things to think about."
Both Purcell and Gosche have questions on their company websites -- (www.purcellasc.com) and (www.glmfinancial.com) -- that they suggest buyers should be asking.
Here is an adapted -- which means shortened -- list of questions to consider asking if you're buying a business, questions you should be ready to answer if you're selling:
• Why is the business for sale? What's wrong with it?
• What assets am I buying? Any intellectual property, such as trademarks?
• How many employees (full- and part-time) are on the company payroll? What are their skill sets?
• Does the business have written employment policies? Written employee manuals?
• Have training programs -- such things as team building or harassment issues -- been conducted? How recently? By whom?
• How big a working capital cushion will I need?
• Is there a customer concentration? In other words, does one customer account for, say, 95 percent of sales?
• Do I have the skill sets needed to manage the business?
• What's the industry outlook (from an impartial resource)?
• Do the numbers work (especially important if you're looking for a specific return on your investment)?
• Is the seller open to seller financing?
• Is there a current customer database? A prospect database?
• If property is included, how is it zoned? Can the property be subdivided later and sold off?
Gosche's list includes some strategic considerations, too:
• Consider paying on installments.
• Consider holding back some of the purchase price until after closing -- say for six months or more in case you suffer a loss because the owner failed to disclose some information.
• Consider an earn-out provision where the seller gets paid only if certain financial milestones are met.
• Consider buying the land in one purchase and the business in another, if the two are owned separately or if your purchase can be structured that way.
© 2017 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter. Write him at Jim@kendallcom.com. Read Jim's Business Owners' Blog at www.kendallcom.com.