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5 Important Questions to Ask Yourself Before Buying a Business

Deborah Sweeney
Deborah Sweeney

Buying a business may sound easier than building one from the ground up, but as someone who has bought a company, I have experienced how hard the whole process is. Yes, you are buying name recognition, branding, and the infrastructure behind the business, but there are plenty of challenges that can overshadow that initial boost. Your management style may not mesh well with the rest of the staff, or you could be walking into a dying market.

Before you consider buying a business, you need to ask yourself these five important questions upfront.

1. Do I know why they are selling?

This is the most important question to ask. Chances are that if the current owner is looking to divest, they have a reason for it. Maybe they are retiring, are tired of the industry, or realize they are on a sinking ship that's impossible to save. Don't expect the current owner to be completely honest with you, and approach negotiations with a bit of suspicion. Ask to see numbers, make them prove to you that this business is profitable or, if it isn't, that it can be (Tweet This!). Buying a business is a major investment, so you need to be confident in the company before you purchase.

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2. Where is the money coming from?

Are you taking out a loan? Tapping into your savings? Mortgaging your house? It's important to know how much money you have to work with, and whom you'll have to pay back. When I bought MyCorporation, I mortgaged my house to help pay for everything, but I had been working for the company for years and felt confident enough to put my home on the line. That isn't to say I wasn't scared, but I believed that this business would make money, and it did. If you're not as confident in the company you're buying, it may not be a great idea to clear out your 401(k) or bet your house on that particular venture.

3. Am I familiar with this industry?

You should be if you're considering buying a company within it. You can ask the owners to stay on for a few weeks to help you get acclimated to the new business, but if you don't know anything about what the company does, or the challenges that your industry faces, they won't be able to help you. As I said before, I had been working for MyCorporation for years, and I knew the ins and outs of this industry. I didn't know everything, and neither will you unless you've had a hand in running the company already, but I knew enough to hit the ground running from day one.

4. What will I do differently?

When you run a business, you quickly grow to fear stagnation. I know the old axiom of 'if ain't broke, don't fix it' rings true for many entrepreneurs but if you blindly ascribe to that belief, your competitors will leave you in their dust. Take a look at how the business operates under its current owners, and ask yourself if your ideas would be any better. Does it seem like operations are bloated? Is marketing non-existent? Are customers being treated poorly? Spend a couple of days on the floor and get a feel for the company, and find what needs to be fixed.

Related: 5 Signs You Aren't Ready to Start a Business

5. How will I protect this deal?

I cannot stress this enough -- always get everythingin writing. A paper trail is going to be your best friend if and when you decide to buy (Tweet This!). Save emails, keep records, and get every agreement and decision in writing. Sometimes people are forgetful and need good records to remind them of what they agreed to. But some people are also a little underhanded, and they could try to back out of part of the deal, even if they agreed to it verbally. Really, it's all about protecting you. I know that you already have enough paperwork to deal with, but if there any hiccups during this purchase, you'll be happy to have these records.

Take it from me -- buying a business is not for the faint of heart. You'll still be putting in tons of hours to reshape and refocus the company according to your vision. There are still no shortcuts to success, but you can prepare yourself by asking the right questions, and figuring out exactly what you are getting into. That way, when you sit behind your desk as the company's new CEO, you'll know what needs to be done.

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Deborah Sweeney
Deborah Sweeney Member
Deborah Sweeney is the CEO of MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.