You may very well laugh at the title of this section, but it is actually a very serious and important topic.
Once you have identified a business that is of interest to you, you will experience your first conversation with either an intermediary such as a Business Broker or with the owner/seller himself. The answers that you receive to your initial questions should provide you with sufficient information to allow you to decide whether or not you wish to pursue this opportunity any further with this prospect or continue looking for another business to acquire.
The way in which you format or phrase your questions will determine whether the answers and other information that you receive is truly of use, valid and beneficial.
Your initial questions should easily qualify the business as truly being a valid candidate for acquisition by you. In order to accomplish this I highly recommend that you make a list of the questions that you require answers to. Attending this meeting or any other being unprepared is a waste of everyone’s time including yours. The specific questions will most likely change with each and every opportunity. Your prior knowledge of the industry, its markets and the business that you are considering acquiring will have a substantial affect on the questions that you will need to have answers to.
For this exercise we will assume that you do not have any prior knowledge of the business or its current ownership.
The basic questions that you need answered are:
- What kind of business is it?
- Why is the current ownership selling?
- What functions does the current owner perform within the business?
- What were last year’s sales?
- What were last year’s net profits, pre tax and does that include all of the owner’s income from the business? (If it does not include all of the owner’s income from the business ask how much additional money did the owner take out and in what manner).
- Does the company have positive cash flow? Note, a company or business can be very profitable and still have negative cash flow. As well, a company can show losses and have a positive cash flow.
- What is the selling price and how is it broken down (how much for fixed assets, inventory, intangible assets and goodwill)?
- Does the company operate with a line of credit or other loans? (If the answer is yes then request a breakdown in round numbers).
The answers to those eight questions should give you enough information to decide if you wish to proceed to the next step with this specific opportunity.
The format to the questions is basically simplistic. The questions are short and to the point and should solicit a definitive answer.
Do not phrase the questions in such a manner that implies or hints to the answer you would like to hear.
- I understand that the business that we are discussing is a middle to high end women’s apparel retail store?
- Is the current owner selling because he wants to retire?
- Does the current owner do all the buying?
- Is the current owner willing to stay on for at least 2 years?
- Does the business have good growth potential?