Buying a business
What questions should you ask when buying a business?
The questions to ask a seller before making an offer and during due diligence – about earnings, customers, people, the owner's role, cash and the reasons for selling.
Lee Wallace, ACMA CGMA · Published
Question · 4 min read
In short
Ask questions that test the figures your offer will rely on and the risks a new owner would take on: why the owner is selling, what the business really earns, how much depends on the owner and a few customers, how cash and working capital behave, and what liabilities exist. Ask the broad questions before an offer, and follow them with evidence requests during due diligence.
Before you ask: two principles
- Questions open a topic; evidence closes it. A seller's answer tells you where to look. The accounts, contracts and records confirm it. Before an offer, the aim is to understand; during due diligence, the aim is to verify.
- Ask early what could change your mind. A short list of questions whose answers could stop the deal or change the price is more useful than a long list asked evenly.
About the sale
- Why are you selling, and why now?
- What do you want from the sale: price, timing, the future of the team, your own role afterwards?
- How long would you stay to hand over, and in what role?
- Have you had other approaches or offers? What happened?
- Is anything about the business likely to change in the next year – a contract renewal, a lease, a key person leaving?
About earnings
- What does the business earn in a normal year, and which year would you call normal?
- Which costs in the accounts relate to you personally, or would not continue after a sale? Can you show the evidence?
- How much do you take out of the business in total, and in what form – salary, pension, dividends, benefits?
- What would it cost to employ someone to do your role?
- Are there any one-off items – unusual income or costs – in the recent figures?
- How do this year's figures to date compare with last year's?
Our guide to valuing a small UK business explains why these questions matter.
About customers and revenue
- Who are the largest customers, and what share of revenue and profit does each provide?
- Which customers are on written contracts, and on what terms? Do any contracts allow the customer to end them on a change of ownership? (Your legal advisers will review the contracts themselves.)
- How much revenue repeats each year, and how many customers have been lost recently? Why?
- Who in the business holds the relationship with each major customer?
- When were prices last reviewed, and how did customers respond?
About the owner's role and the team
- What do you personally do in a typical week? Which decisions do only you make?
- Could the business run for a month without you? What would go wrong?
- Who are the key people, and how long have they been with the business? Are any likely to leave on a sale?
- Are there any informal arrangements – bonuses, benefits, family members' roles – that are not written down?
About cash, working capital and debt
- How quickly do customers pay, and how quickly do you pay suppliers? Has that changed recently?
- How much stock is held, how is it valued, and is any of it slow-moving or obsolete?
- Is the business seasonal? When does it need the most cash?
- What borrowings, leases and hire purchase agreements are there?
- Are any tax, VAT or payroll payments overdue, or under any arrangement?
- What spending on equipment, vehicles or systems is coming up?
Our complete guide to financial due diligence for buyers explains how these areas affect the price you pay.
About risks and loose ends
- Are there any disputes, claims or complaints, current or threatened?
- Are there any regulatory, licensing or compliance matters that a new owner should know about?
- Are the premises leased or owned, and when does the lease end? (Your legal advisers will review the lease.)
- Does the business own the assets, equipment, intellectual property and domain names it uses?
- Is there anything you would want to know if you were buying this business?
What this means in practice
- Before an offer, keep it conversational and focus on the questions that could change your view. Note each answer and what evidence would confirm it.
- After heads of terms, turn the notes into a structured information request. Get our buyer's information request list by email.
- Watch for patterns: answers that are vague, change over time, or are not supported by the records are themselves useful information.
Our guide to reviewing an acquisition opportunity shows how these questions fit into a first review, and our complete guide to buying a UK business covers the whole process.
How Proplexo can help
An Acquisition Opportunity Review is a focused first look at a business you are considering buying, including the key risks and questions for the seller.
This article is general information for owner-managed businesses, not advice on your circumstances.