Top questions to ask when buying a business

You’ve found a business for sale that you like the look of, but now what? The best way to learn about a business is to ask questions.

What you should ask will depend on whether you’re looking at a franchise, or a privately owned business but regardless, the more answers you get the better. Here are some to get you started.

 

Questions to ask a private seller

Why are you selling?
Most owners don’t make the decision to sell overnight, so get them to elaborate on their reasons for moving on.

How did you decide your asking price?
Understanding how the current owner has arrived at the for-sale price can help you work out its true value. Make sure you also get an independent valuation.

What are you looking for in a buyer besides financials?
If the current owner has built up a business with a great reputation, money may not be their only concern when selling. Passing the business onto someone who is experienced, trustworthy, or passionate and will continue their legacy could be just as important, so make sure to ask if you’d be a good fit.

What are you currently paying yourself?
This will tell you whether the financial bottom line looks better because of how much the current owner pays themselves and help you estimate your potential salary.

Do you have any key customers, vendors or staff? Are they aware that you’re selling?
If the business depends heavily on one customer, vendor relationship, or an employee’s expertise, you’re taking a huge risk. Unless they’re tied into a contract, you can’t count on them.

How many hours per week do you personally work in the business?
An important point if you’re concerned about time commitments or work-life balance. See if they take holidays, too.

What are your biggest challenges?
Take it as a warning sign if the owner isn’t prepared to talk about the challenges they face take. Ask how they stay ahead and what strategies are already in place.

Would you stay on for a transition period?
Having the current owner around for a thorough handover, to answer questions, or even offer on-the-job training can be valuable while you find your feet.

Are you willing to agree to a non-competition clause?
You don’t want to buy a business, only to find out the seller is preparing to start a rival company. Get them to sign a clause agreeing not to set up a competing business within a fixed period or certain location.

 

Questions to ask a franchisor

What are you looking for in a buyer besides financials?
Learning what traits the franchisor looks for and why can help you work out if the franchise is right for you.

What’s the typical payback period?
There isn’t an exact science to working out how long it will take to get a return on investment but uncovering other franchisees’ results will give you a rough idea.

What are the total costs that a franchisee faces over the agreement?
The expectations and agreement period of every franchise system differ, so make sure you’re clear on what costs are involved.

What’s the biggest challenge that faces your franchisees?
This will help you understand some of the problems you may be challenged with, as well as the what support and processes are in place from the franchisor.

How many hours a week should I expect to work in the business?
This is crucial if you’re concerned about time commitments or work-life balance. See whether you can set your own hours, take holidays, or expect to work weekends.

What is the length of the franchisee agreement?
Clarify the length of the initial agreement and be clear on whether you’ll have the option to renew or extend the agreement when it ends.

What level of support do you provide?
A huge drawcard for most franchisees is the help offered by the franchisor, so be clear on what’s involved and how you can use this to grow your business. Think marketing plans and collateral, training, one-on-one support, and existing networks.

What are the ongoing costs?
Find out what you’ll be expected to pay on a regular basis, like marketing funds and franchise royalty fees. Get a detailed explanation of what the ongoing costs cover and how they’ll benefit you as a franchisee.

What’s the process to becoming a franchisee?
Every franchise journey is different, so take the time to understand the next steps and what will be expected of you if you choose to go ahead.

This list is a great starting point for your discussions with the seller or franchisor but remember there really are no dumb questions.

There’s more to buying a business than asking questions though, so check out our ultimate guide on how to buy a business to find out everything else you need to know.