Due diligence begins once you start to review a business for sale marketing profile. Once you identify a business opportunity that fits your criteria, sign a confidentiality agreement, and receive additional information on a business, your due diligence expands. If a business continues to peak your interest, the next step is to meet with the owner to learn more about the business.
The initial buyer and seller meeting is the most important meeting in the entire business purchasing process. Assuming that you came prepared, this meeting should be a deciding point on whether or not to push forward.
Below is a partial list of due diligence questions for your first meeting to get you started in making sure that you come prepared to a buyer / seller meeting.
- Tell me about your business?
- How did you get started?
- What services does your business provide?
- What do you do every day?
- Why are you selling your business?
- What is it that you like best and least about the business?
- How long have you been considering selling your business?
- What keeps you up at night about the business?
- How much vacation do you take (not that you're looking for time off...rather, you want to know if they have adequate staff that will allow you time away)?
- What are the last three year's sales and earnings?
- Who are your biggest competitors?
- What are your industry trends?
- Is your market share growing, shrinking, or steady?
- Have there been any significant changes in your marketplace?
- If I buy business, what do you think I can do to increase sales and profits? Why are you not doing these things?
- Ask the seller if he/she has copies of any trade publications. They're a great source for additional information.
- How many employees do you have?
- Who are the employees? Any manager in place? Are there any employees that are critical to the business?
- If I buy business, will you agree to a covenant not to compete?
- Will the business sale include the transfer of real estate?
- What are the details of the lease? How long? Any options? Do you anticipate any problems with the landlord assigning it to me or entering into a new lease?
- Don't you have children to transfer your business to? Why don't they buy business?
- Are you the only owner?
- Who knows that the business is for sale?
- What are you going to do after the sale of your business?
- How long will it take me to really learn this business?
- How long can I count on you to train me after the sale?
- What do you believe is the profile of the ideal buyer for this business?
- Do you anticipate any problems with me getting credit from your suppliers?
- Do any of your suppliers represent more than 20% of your purchases?
- Do you have any customer concentration?
There are many questions beyond this partial list that you will need to ask during your due diligence review. Hopefully this list provides you with a head start in creating your own personal list of questions for the business seller.