Things to Ask Before Buying a Business
Buying an existing business can give you customers, revenue, staff, systems, equipment, contracts, and a brand on day one. It can also transfer problems that are harder to see than the assets: customer concentration, declining sales, weak margins, owner-dependent relationships, employee turnover, outdated equipment, litigation, tax issues, lease obligations, deferred maintenance, or a business that only works because the seller performs unpaid or underpaid labor.
Business acquisitions involve legal, tax, accounting, financing, employment, licensing, and due-diligence issues that vary by transaction and jurisdiction. These questions are a starting framework, not a substitute for qualified attorneys, accountants, lenders, industry specialists, or other advisers who can review the actual deal.
Things to Ask About Why the Owner Is Selling
The seller's explanation does not automatically reveal whether the business is good or bad, but it provides context for everything else.
Compare the stated reason with financial and operating evidence.
- Why are you selling now?
- How long have you owned the business?
- Are you retiring?
- Are you starting another business?
- Has the business become harder to operate?
- Would you keep it if you did not need to sell?
- How long has it been on the market?
- Have previous deals fallen through?
- What would make you decide not to sell?
Things to Ask About Revenue
Look beyond one annual sales number.
Understand trends, seasonality, recurring revenue, cash versus accrual accounting, and how much revenue is tied to a few customers.
- What was revenue for each of the last three to five years?
- How has revenue changed recently?
- What explains the trend?
- How seasonal is the business?
- What percentage is recurring?
- How much is contractually recurring?
- How much revenue comes from new customers?
- How much comes from repeat customers?
- What month is strongest?
- What month is weakest?
Things to Ask About Profit
Seller-discretionary earnings, EBITDA, net income, and cash flow are not interchangeable.
Understand exactly how the asking price was justified and what adjustments were made.
- What profit measure is being used?
- How is seller-discretionary earnings calculated?
- What owner expenses are added back?
- Which add-backs are truly nonrecurring?
- What salary would I need to pay someone to replace the owner's work?
- What capital expenses are likely soon?
- What working capital does the business require?
- How much cash does the business consume during slow periods?
- What does normalized profit look like after realistic management compensation?
Things to Ask About Customers
A business that depends heavily on one or two customers can lose substantial value if those customers leave after the sale.
Understand concentration, retention, contracts, and how relationships are held.
- How many active customers are there?
- What percentage of revenue comes from the largest customer?
- What percentage comes from the top five?
- Are customer contracts assignable?
- How long do customers typically stay?
- What is the churn rate where relevant?
- Why do customers leave?
- Who owns the key customer relationships?
- Will customers stay after the seller leaves?
- What customers are at risk right now?
Things to Ask About the Seller's Role
Many small businesses are worth less when the owner is the salesperson, technician, manager, estimator, bookkeeper, and relationship holder all at once.
Map what the seller actually does each week.
- How many hours do you work?
- What do you personally do?
- What decisions only you make?
- Which customers call you directly?
- Which employees depend on you most?
- What would stop working if you disappeared for thirty days?
- Can an employee take over your responsibilities?
- What salary would a replacement manager cost?
- How long are you willing to help after closing?
Things to Ask About Employees
Employees may be one of the business's biggest assets and biggest transition risks.
Understand roles, pay, tenure, benefits, key-person dependence, vacancies, and whether anyone plans to leave.
- How many employees are there?
- Who are the key employees?
- How long have they been here?
- What are their compensation arrangements?
- What benefits are provided?
- Are there open positions?
- How high is turnover?
- Who might leave after a sale?
- Do any employees have written employment agreements?
- What employee issue should I know about?
Things to Ask About Suppliers
Supply concentration can be as risky as customer concentration.
Ask about pricing, credit terms, exclusivity, shortages, and whether relationships transfer.
- Who are the major suppliers?
- How much purchasing depends on the largest supplier?
- Are there backup suppliers?
- What credit terms do suppliers provide?
- Will those terms transfer to a new owner?
- Have prices increased significantly?
- Are any supplies difficult to obtain?
- Are there exclusive or long-term contracts?
- What supplier relationship depends personally on the seller?
Things to Ask About the Lease and Location
For a location-dependent business, the lease may be one of the most important assets—or liabilities.
Understand assignment rights, rent increases, remaining term, options, required guarantees, and whether the location is essential.
- How much time remains on the lease?
- What renewal options exist?
- How does rent increase?
- Can the lease be assigned?
- Does the landlord need to approve the buyer?
- Will I need a personal guarantee?
- What maintenance is the tenant responsible for?
- Is the location essential to revenue?
- Could the business move successfully?
- Are major building expenses expected?
Things to Ask About Equipment and Inventory
The value of equipment depends on age, condition, ownership, liens, maintenance, and replacement needs.
Inventory needs to be usable and saleable rather than simply counted.
- What equipment is included?
- What is leased?
- What is financed?
- What equipment needs replacement soon?
- What maintenance records exist?
- What inventory is included?
- How is inventory valued?
- How much inventory is obsolete?
- How much is slow moving?
- Will inventory be counted at closing?
Things to Ask About Debt and Liabilities
The structure of the acquisition affects which liabilities transfer, but due diligence should identify existing obligations regardless.
Legal and accounting advisers should review the transaction structure.
- What loans does the business have?
- What equipment financing exists?
- What liens exist?
- Are taxes current?
- Are payroll obligations current?
- Are gift cards or customer deposits outstanding?
- Are warranties or service obligations outstanding?
- Are there pending refunds?
- Are there lawsuits or threatened claims?
- What liability is easiest to overlook?
Things to Ask About Licenses and Permits
Some business licenses or professional permits do not automatically transfer to a buyer.
Verify what the new owner must obtain before operating.
- What licenses are required?
- Which are held by the company?
- Which are held personally by the owner?
- Can they transfer?
- What permits are tied to the location?
- What professional credentials are required?
- How long does approval take?
- Could the business legally operate immediately after closing?
Things to Ask About Marketing and Lead Generation
Revenue may depend on paid advertising, search rankings, referrals, a marketplace account, social following, salesperson relationships, or one channel the buyer does not control.
Understand where customers actually come from.
- Where do new customers come from?
- How much is spent on marketing?
- What is the most important channel?
- What happens if that channel becomes more expensive?
- Who controls the website and domain?
- Who controls ad accounts?
- Who controls social accounts?
- How much business comes from referrals?
- Are lead sources transferable?
- What marketing activity does the seller personally perform?
Things to Ask About Systems and Records
A business that lives in the owner's head is harder to transfer.
Ask what processes are documented and whether the records are complete.
- Are operating procedures documented?
- Is there a customer database?
- Are contracts organized?
- Are accounting records current?
- What software does the business use?
- Who owns the software accounts?
- Are passwords and administrative access documented?
- How are quotes, jobs, orders, or projects tracked?
- What process exists only because one person remembers how to do it?
Things to Ask About the Purchase Price
The price should make sense relative to normalized earnings, assets, growth, risk, and comparable transactions where relevant.
Do not rely solely on the seller's valuation.
- How was the asking price calculated?
- What earnings multiple is being used?
- What assets are included?
- Is inventory included?
- Is working capital included?
- What liabilities transfer?
- How much goodwill is in the price?
- What would the business be worth if revenue declined?
- What independent valuation evidence is available?
Things to Ask About Financing and Deal Structure
Deals may involve cash, bank or government-backed loans where available, seller financing, earn-outs, retained equity, or combinations.
Each structure changes risk and incentives.
- How much cash would I need at closing?
- What financing is available?
- Would the seller finance part of the price?
- What terms would apply?
- Would an earn-out make sense?
- Is this an asset purchase or equity purchase?
- What working capital must remain in the business?
- What personal guarantees would I give?
- What happens if performance drops immediately after closing?
Things to Ask About the Transition
A strong transition plan helps transfer customers, suppliers, employees, knowledge, credentials, and relationships.
Define the seller's role after closing rather than leaving it vague.
- How long will the seller stay?
- How many hours per week?
- Will the seller introduce key customers?
- Will the seller introduce suppliers?
- Will the seller train me?
- What happens if questions arise after the transition period?
- Will the seller agree to reasonable noncompetition or nonsolicitation terms where lawful and appropriate?
- What relationship must be transferred first?
A business may look profitable because of one owner, one customer, one supplier, one location, or one marketing channel. Due diligence should show whether the economics survive after the seller leaves.
Things to Ask About Due Diligence Access
A serious buyer needs enough access to verify the seller's claims. The exact process depends on confidentiality and transaction stage, but important numbers should eventually connect to real records.
Be cautious when material information is repeatedly withheld without a credible reason.
- What financial records can I review?
- Can revenue be tied to bank or accounting records?
- Can major customer concentration be verified?
- Can leases and contracts be reviewed?
- Can payroll and employee obligations be verified?
- Can tax filings be reviewed with advisers?
- What information will only be available after a letter of intent?
- What claim can the seller not document?
Frequently Asked Questions
What should I ask before buying a business?
Ask about the seller's reason, revenue, profit, customers, owner dependence, employees, suppliers, lease, equipment, inventory, liabilities, licenses, marketing, systems, valuation, financing, and transition.
What financial records should I review before buying a business?
Common due-diligence materials include tax returns, income statements, balance sheets, bank records, payroll, accounts receivable and payable, debt schedules, and other records appropriate to the business. A qualified accountant should help evaluate the actual transaction.
Why is owner dependence important?
If revenue, operations, customer relationships, or technical work rely heavily on the seller, the business may perform differently after the sale unless those responsibilities can be transferred.