There are a lot of businesses for sale out there. Finding the right one requires you to do a proper background check and also make sure you ask the right questions. There are quite a number of different questions you can ask, but knowing which one will get you the answers you are looking for is essential. Once you find the right business for sale in your local area, here are some of the questions that should be at the top of your list.
Why does the owner want to sell the business?
The very first piece of information you want to know is why the business is being sold. The reason should be compelling and honest. You might have to ask around to get the real reason and also run checks, but ultimately, you are trying to avoid buying a business that is in trouble and sinking. You also don’t want to buy a business that is being phased out or has a very high running cost or poor work/life balance.
Are there audited year-end financial statements?
One of the more accurate ways of telling whether the business you want to buy is financially sound is looking at the audit reports and other statements which include tax returns for a period of up to five years. This should give you a clear picture of how the business is doing and whether it is a profitable venture. It is also important that you look at any liabilities and debts that the business might have and how they are going to weigh you down going forward.
Is the business involved any government agency investigation or has it ever been involved in any such investigation? What is the status of that investigation and what were the results?
Any business can find itself in the middle of an investigation. That should not be a red flag. However, the reasons for the investigation and the results are what should concern you. If the investigation is ongoing, you might want to hold off until the investigations are complete and the results are clear. The last thing you want is to buy a business and then have it closed down as soon as you make the purchase. This can be especially troubling if you are looking to buy a local business. For example, if you are looking for businesses for sale in San Diego, you want to make sure that the business does not run afoul of any California laws or regulations.
In the same light, you should also find out if the business has been involved in any lawsuit or has any current lawsuits. If there has been, you need to find out what the outcome was and how it affects the business going forward.
How much does the business write off every year in bad debts?
You have to know if the business has the right systems in place to minimize financial bleeding. If there is a high amount of bad debts written off each year, it might not be the best investment for you. You can also ask what percentage of the business’s accounts are past due which is another question that will hint at the effectiveness of their accounting processes. If the amounts are slightly high, it might not be a dealbreaker, but you need to ask yourself if you will be able to minimize the losses and improve profit.
Depending on the type of business for sale you are looking for, the questions you ask can differ. But the questions highlighted here apply to virtually every business in any field. You should focus more on finances in different aspects like expenditure and revenue generation to understand the state of the business and identify how you are going to run it going forward.