Small Business Corner

Are you thinking of buying an existing business? Don't forget to do your research. Not sure what you need to know? Use this checklist to answer questions about the company's viability.

General

Why is this business for sale?

What is the history of the business, including the background of founders and key management?

What is the outlook for this industry and this business?

Financial

Are the company’s revenues rising or declining? If declining, what is needed to improve them?

What is the company’s financial status? Ask for audited year-end financial statements (balance sheets, income statements and cash flow statements) for the past three years.

Ask for three years’ worth of tax returns. (If a business owner claims to have made more money than the tax returns show, but just didn’t report it, he or she may be dishonest in other areas too.)

In addition to the above, have your accountant review key financial ratios including gross profit to net sales, net income to net worth, and net income to total assets.

What current debts does the company have? Are there any liens against the business?

Are a substantial percentage of accounts past due? If so, how overdue are they? Is the company writing off any bad debts?

Does the company have adequate working capital?

Does the company have a good relationship with its bank?

Legal

Is the business involved in any ongoing lawsuits, and if so, what are the details? Has it been involved in lawsuits in the past, and if so, what was the outcome?

What are the company’s current contracts? Have your attorney review them. Is any business done without contracts?

What zoning or industry regulations affect the business? Are there any proposed or pending changes to these regulations that could affect the business?

Market

What is the target market for the business? Is that market growing, stable or shrinking?

Does the business rely too heavily on a few key customers? What would happen if those customers left?

Who are the company’s primary competitors? How successful are they, and what are their growth prospects?

How much market share does the business command? How does that compare to the competition?

Sales/Marketing

What sales channels does the business use? Which are most and least effective?

What marketing methods does the business use? Which are most and least effective?

Are the business’ sales consistent, or do they vary seasonally?

What is the sales history for the past few years? What are projected sales?

If sales are rising, is the increase due to growth in the market or to raising prices?

Assets

Does the company own any intellectual property, proprietary processes or exclusive products? If so, will the ownership rights transfer to you?

Does the company own or lease its location/s? What are the terms of the mortgage or lease? Can you take over the lease or assume the mortgage?

Does the business own or lease its equipment? If the latter, can you take over the lease? Is the equipment current or outdated?

What is the company’s reputation? Use social media, visit online ratings and review sites, contact the Better Business Bureau and talk to existing customers and suppliers to get a fuller picture.

Does the business have current licenses, permits and/or certifications from industry organizations?

Does the company enjoy strong brand recognition in its market?

What types of insurance policies are in place? Can you take over the policies as part of the sale?

Suppliers

Who are the company’s suppliers? Are the suppliers willing to transfer the existing contracts to you when you take over the business?

Does the business have multiple suppliers or just a few?

What inventory levels does the company maintain? Too much can be a sign that the company is struggling to move product or is spending too much maintaining inventory.

Employees

How do employee wages compare to the industry average and to average wages in the local marketplace?

What employee benefits are offered? How much do they cost?

Does the business have many long-term employees, or is there high turnover?

Who are the key employees? What are their duties and positions?

What is the company culture like? Is it a good fit for you?

Are the employees unionized, or are they planning to unionize?

Are key employees likely to stay on after a change of ownership?

Download printable checklist here.

This article was originally published by SCORE, the nation’s largest network of volunteer, expert business mentors, is dedicated to helping small businesses get off the ground, grow and achieve their goals. View original article here.