It’s very appealing to want to buy a company. Recently a friend of mine was looking at a business to buy but he hadn’t asked a lot of the important questions he needed to about it. I went over what he needed to think about and I want to share these with you.
Questions to Ask Yourself
How Much Time Do You Plan to Put in the New Business/Take Away from Your Existing Business?
How Cemented Are You In Your Current Business? Are you the lead salesperson/technician/etc? You want to work yourself out of those roles so you have the flexibility to involve yourself in other businesses as well.
Are You Simply Moving Money from One Pocket to the Other?
Will running this new business hurt your current business? Are you simply making less money in one company and replacing it with money in another?
Is There Any Synergy Between These Two Companies?
Will the new business HELP the first business? Will it be a force multiplier for your existing business?
Questions to Ask the Seller
Get a Copy of the Company Tax Returns for the Last Three Years
You need to have records prior to the pandemic so you know if you are buying a shell of what the company used to be or you are actually buying a business that is working.
Get a Copy of the OWNER’S Tax Returns for the Last Three Years
He/She can white out whatever information they want but I need to see how much money they were able to put in their pocket.
I want to see exactly what they make.
What Debts Do the Company Have?
I don’t want to be responsible for any debts/buyouts/liens and you need to know this before you put together a contract to buy the company.
What Assets Do the Company Own? (and the debts against them)
Companies can come with thousands, hundreds of thousands, millions of dollars in assets. They may not all be paid for though so they may have debt riding against them.
Get Copies of Monthly Account Statements for the Last Three Years
I want to see the cashflow every month. How close are the running to the edge every month?
What is the Payroll Average?
I need to know what it required every single week. Sometimes I need to reverse engineer this and see where positions can be consolidated or changed.