Checklist for Business
If you find a business that you would like to buy, consider the following points before you decide whether to purchase it. Take a good look at the business and answer the following questions. They will help you determine whether it is a sound investment.
Why does the current owner want to sell the business?
Does the business have a high potential for future growth, or will its sales decline?
If the business is in decline, will you be able to save it and make it successful?
Is the business in sound financial condition? Have you seen audited year-end financial statements for the business? Have you reviewed the most recent statements? Have you reviewed the business's tax returns for the past five years?
Have you seen copies of all of the business's current contracts?
Is the business now, or has it ever been, under investigation by any government agency? If so, what is the status of any current investigation? What were the results of any past investigations?
Is the business currently involved in a lawsuit, or has it ever been involved in one? If so, what is the status or result?
Does the business have any debts or liens against it? If so, what are they for and in what amounts?
What percentages of the business's accounts are past due? How much does the business write off each year for bad debts?
How many customers does the business serve on a regular basis?
Who makes up the market for this business? Where are the customers located? (Do they all come from your company or from across the state, or are they spread across the globe?
Do sales fluctuate with the season?
Does any single customer account for a large portion of the sales volume? If so, would the business be able to survive without this customer? (The larger your customer base is, the more easily you will be able to survive the loss of any customer. If, on the other hand, you exist mainly to server a single client, the loss of that client could finish your business.)
How does the business market its products or services? Does its competition use the same methods? If not, what methods does the competition use? How successful are they?
Does the business have exclusive rights to market any particular products or services? Is so, how has it obtained this exclusivity? Is it making the best possible use of this exclusivity? Do you have written proof that the current business owner can transfer this exclusivity to you?