Key questions to ask when acquiring a business

For many entrepreneurs, purchasing an existing business can seem like a more appealing option than starting one from scratch. However, buying a business involves a number of potential pitfalls that can be easily overlooked without thorough research. Ensuring you make the right acquisition at the right time requires more careful consideration than many expect.

The first step in making an informed business acquisition is gathering as much information as possible about the business and the sellers. There are standard questions every buyer should ask, which apply across most industries, as well as a few less common inquiries that could be the difference between a successful and a problematic acquisition.

Why Are You Selling the Business?

While this may seem like an obvious question, the way the seller answers it can provide crucial insights into the business's true situation. Common responses include “I’m retiring,” “I’ve been offered a great new opportunity,” or “I’ve lost interest.” While these can often be legitimate, pay attention to the tone and context of the response, and whether there’s any supporting evidence. If you’re not confident in the seller’s honesty at this stage, it might be best to reconsider the purchase. On the other hand, if the answer deviates from the norm, it may offer a more candid insight into the real reasons behind the sale.

What Are the Biggest Challenges Facing the Business Right Now?

Listening to the seller’s response to this question is essential. A transparent answer not only gives you room to negotiate, but also helps you understand the existing issues within the business. This knowledge allows you to plan solutions and come into the business prepared to add value. After all, one of the main reasons for acquiring an existing business is to improve it and build on its foundations.

What Would You Do Differently If You Could Start Over?

Hindsight can be incredibly valuable. Asking the seller what they would have done differently in hindsight can provide you with invaluable insights into areas where the business could have been improved. A seller who’s invested time and effort into building the business will likely want it to continue thriving. In many cases, they’ll be willing to share key learnings and advice to help ensure its future success.

Are the Vendors Willing to Stay On for a Transition Period?

Many sellers are willing to remain involved in the business for a transition period after the sale. This can be incredibly beneficial for a smooth handover. Make sure to formalise this arrangement and compensate the seller appropriately for their time. A seller’s willingness to stay on shows their continued commitment to the business and reassures you that they aren’t leaving with any hidden motives. It’s also worth asking if the seller is open to signing a non-compete clause. If they’re hesitant, it could be a red flag that they may start a competing business and poach clients from yours.

What Does the Seller Hope to Achieve from the Sale?

While the seller may not disclose their exact asking price, understanding their non-financial motivations for selling can provide valuable insights. If the seller is invested in seeing the business thrive post-sale, such as ensuring job security for employees, this could open the door for negotiation. Additionally, knowing their motivations can help you gauge whether the seller might later start a competing business.

If you’d like to learn more about acquiring an established business, the experts at CBS are here to help. With over 30 years of experience and more than £500 million in business sales, we can guide you through the entire process of buying and selling a business.