Here are the 10 most important questions to ask when buying a business.
Due diligence is all about ensuring that the underbelly and all the financial nitty-gritty is as attractive as surface appearances and is the first step towards a successful business acquisition.
From understanding the businesses key selling points, through to uncovering risks and hidden liabilities that could derail the deal or impact future profitability, here are the 10 most important questions to ask when buying a business.
Understanding the why and the what
Why is the business selling? The seller’s motivation for selling reveals a lot: are they retiring, relocating, moving on to a new venture, or are they discouraged by falling profits? Understanding their reasons for exiting can throw light on the overall health of the business.
What’s included in the sale? Will the business premises and land be included, as well as assets such as equipment, machinery, company vehicles, furniture, fixtures and fittings? Is inventory and stock included? What about intangible assets such as intellectual property? Knowing exactly what you’re getting upfront avoids surprises further down the line.
Taking a forensic look at the financials
Can I see the financials? Request the last three years of audited financial statements, including income statements, balance sheets, and cash flow statements.
What’s the current rent? Lease agreements are a big part of running a retail space. Knowing the rent cost, duration, and any renewal clauses is vital for future planning.
What are the business’ debts and liabilities? Understanding any outstanding loans or debts is essential. This could include loans, mortgages, outstanding bills or invoices, or any legal fees that may be owed.
Assessing the market and customers
Who are your main competitors? Research the local market, identify the business’ competitors, and identify the company’s key differentiators. Is it its product offering, its IP and branding, or its location?
How does the business market itself? Find out the business’ current marketing strategies and its average campaign ROI. Determine whether there are opportunities for improvement. Are there underused channels, or could they be optimising their campaigns for better results?
Who are the target customers? Is this a high-growth market? And what is the approximate proportion of repeat business?
Look at the team
How many employees are likely to be transferred over as part of the sale? How skilled are they, and how long have they been with the business? Understanding their roles, skills, and contracts is important for maintaining smooth operations.
What support will be provided during the handover? A smooth handover period ensures business continuity and minimal disruption for customers. Ask about any training or support the seller will offer to help you navigate the initial phase of ownership.
