In our DMs and email Codie and I are frequently asked: when buying a business what questions to ask? Due diligence checklists often miss this simple component to understanding the benefits of the small business acquisition. You should be asking about the business owner and their motives, financial statements, balance sheets, customer information, working capital, physical assets, and the team for starters.

18% of private businesses fail within the first year of being in business. After 5 years, that number grows to almost 50%.

If you are thinking about buying a business, especially if it is still young, you need to know the right questions to ask so that you don’t acquire one that goes out of business right away.

You’d be left with nothing, out thousands and possibly even hundreds of thousands of dollars because of your failed investment.

In this guide, we’ll walk you through how to do your due diligence with questions to ask when buying a business.

7 Questions to Ask Before Buying a Small Business

1. Why Are You Selling Your Business?

If you are in the process of buying a business, you first need to understand why the other party is selling their business.

If you don’t understand this, you could be left in a situation that could either leave you without a business or spending tons of money to save the business.

For instance, when you ask this question, they could respond in a multitude of ways. If they say something along the lines of dealing with problems with the business, you can follow up to ask more questions. This way, you can learn what problems they were having.

Can the problems be fixed? Were they just giving up or are these problems that would linger through the purchase where you’d end up dealing with them?

This question is straight to the point, so there’s not too much the current business owner can do to get around the question. However, if the current business owner does give you a vague answer, you must ask more questions to dig deeper.

For instance, if they say, “I am ready to retire,” you’ll want to ask more questions like the following:

• What problems did your business have?
• What are the red flags I should be concerned about?
• What were your biggest pain points when running the business?

Leaving yourself with these vague answers could leave you in trouble down the line. If you were wondering what questions to ask when buying a business, you now know the first question.

2. What Does the Financial Situation Look Like?

You’re about to buy a business. Finances are a huge part of running a business.

That’s why it is crucial to ask about the financial situation of the business you are about to obtain.

As part of their answer, they should give you insight into their budget, where they allocate their money and spending, where their revenue comes from, how much they profit, and more. Here are a few:

• What’s the gross annual revenue of the business?
• How much total profit have you made since owning the business yourself?

You should have a list of other financial questions to ask when buying a business as well before you make your final decision.  Right now we are just gathering basic financial information about the business.

At some point you will be asking for a tax return for the past few years, annual reports showing profit and loss statements, cash flow, audited financial statements, etc. If you are looking for seller financing to make the deal come together, you may start by showing them how they could continue to have a similar stream of income even after retiring and selling the business.

If the answers to these questions do not leave them with a huge profit, you may want to ask follow-up questions to that as well, or you may decide it is best to walk away in that case.

3. What Does Day-to-Day Management Look Like for the Business?

When it comes to buying a business, there is much more to it than just knowing about the financial situation and if there were any problems. If the answers to those questions are sound, you need to better understand what the daily management of the company looks like.

For instance, are there employees or would you be taking on a business with just yourself? Are you on the hook for doing some mundane tasks or are you more of the visionary? Is there a CFO of the business or would you also be making the financial decisions?

Here are a few more questions about daily management.

‣ What Does the Marketing Look Like?

A crucial aspect of owning a business is the marketing technique. It’s important to know if you are taking over a great marketing strategy or if you will need to create one.

Under this question, you should also ask follow-up questions like:

• Do you have a social media presence, and if so, who runs it?
• Do you have a business website?
• Do you have a blog?
• Do you outsource your marketing strategy or do you have an employee who runs it?
• Do you pay for any advertising? What is the budget?

‣ Do You Have a Running List of Clients?

Buying a business and starting with nothing can be a lot of work. Going into it with a list of profitable clients can give you a leg up.

‣ Do You Pay Yourself?

This is a very important question. The only way you are going to come out on top as a business owner is if you do pay yourself portions of the profits from the company. Whether the business owner pays themself as part of weekly payroll or monthly profits matters a lot less than the amount the owner earns from the business. All of this should be figured into the SDE (Seller’s Discretionary Earnings).

‣ What Are Your Employers Jobs?

While the business may not have any employers, if they do, you’ll want to know their job titles and daily tasks. This way, you can stay organized and up-to-speed with what they are doing. Having a team in place is a huge value add when buying an existing business as long as the team is the right team.

Get to know the team as they are a major component of the value of the company. Also, the level at which their jobs and expectations are documented creates a ton of value as well. If one of them left tomorrow, would you know what to do? Could you hire someone else to do that job?

4. Do You Have Any Tips for Running the Business?

One of the most important questions to ask before buying a business is advice from the current business owner. No one knows the business that they are currently running better than they do.

Because of that, they most likely have advice that others would not, and knowledge that you do not have either. 

You can ask them for advice on how to run it daily, how they go about setting goals, how they decided on budgeting, and more.

You can also leave it as an open-ended question so that they hit on the points and advice that they think is the most important to help you be successful during the takeover.

Here are some ideas on what to ask:

• What’s the most important thing you do every day to drive the business?
• What’s one area of the business you would like to improve?
• Where does most of the revenue in the business come from?
• If you want to double the size of the business, what’s the first thing you would do?
• If you could start over, what would you do differently in the business?

5. What Licenses or Permits Does the Business Need?

When buying a business, you need to ensure you are doing everything you have to do on the legal side of things.

You should be aware of all licenses or permits you need to run the business, as well as what permits and licenses the business itself needs to stay running legally. If you are borrowing money, especially SBA Loans, they will want to make sure this is taken care of as well. You can’t run a business without the proper licenses, which means future cashflow, and the value of the company, don’t exist without a license.

The current owner should have the answers, but double-checking the information through governmental websites is never a bad idea. Not to mention figuring out who holds the licenses and whether or not they will be staying on for a certain amount of time in the company is an important part of your due diligence process.

6. What Is the Target Market?

To have a successful business, you need to know who exactly needs your business. This is your target market, or target audience.

Once you know this, it is easier to cater your services and products to their needs, marketing to them through accessing their pain points and needs.

When it comes to the target market, you will also want to know if the market is growing or shrinking. If it is not a growing market and is stagnant, you may want to consider a different business venture as the business may eventually phase its way out.

7. Ask Yourself: Am I Passionate Enough?

After you ask the current business owner the above questions, you really have to look within yourself for the final answer. Are you passionate enough about the topic of the business?

You are the only one who knows what you are capable of, what you want, and why you want to buy the business. You are the only one who knows if you will grow bored of running this business.

For instance, if the business is running an educational institution, you should ask yourself if you are passionate about education.

Do you have a burning desire to make the educational institutions of America better? Do you care about children’s livelihood? Does the current educational system keep you up at night?

Or maybe you are going to buy an investment business. Ask yourself about your current investments, how much you know about investing, and if you feel that you could talk about investments every day. This will tell you about your passion levels.

The answers to those questions can help you determine if you have the passion and the drive to take over the business. Without passion, you can grow tired of the business and give up on what it stands for.

Questions to Ask When Buying a Business- Learn with Experts

With these questions to ask when buying a business, you should be in great shape when it comes time to take over the business you want to buy.

You’ll know the financial standing of the business, have tips about how to run it, and know that you are all-in to make it successful. Knowing the questions to ask before buying a business gives you a tremendous advantage in negotiating a deal. That’s why we discuss these questions on live calls about each deal in our Mastermind Program. Deal reviews are an essential part of the business buying process.

If you are ready to become a business owner and need a little help from some professionals, please check out our mastermind program. If you’re ready to hang out every week with people just like you that are looking at buying a business as a path to financial freedom, you have found your tribe. The Unconventional Acquisitions Mastermind Program was built for you, with weekly calls, a private community, live deal reviews, expert interviews, and a community of more than 150 mastermind members working towards a common goal.