Serving Clients in Fairfield, Hartford, Litchfield and New Haven Counties

Buying a Business? Ask Yourself These Questions.

Buying an existing business in Connecticut allows you to fulfill your goal of business ownership without spending years building it. It sounds very attractive to step into a company, for example, that has a product already created, inventory on hand, and distribution and marketing arms already in place.

You have negotiated the purchase price and have the financing arranged. You think you’re ready to close the deal. But have you done all of your due diligence?

There are dozens of factors to consider when buying a business and a number of questions to have answered. 

First, you’ll want to know the background of the business – who founded it, who comprises the management team you’ll work with. Then find out why the business is for sale. Is the owner retiring, or is there a deeper issue, such as the projections for a downturn in the industry?

Then, you’ll need to have your accountant pore over the books. Is the revenue stream steady, growing or falling? Will you be inheriting debt or liens against the business? Are accounts payable and receivable caught up?

To determine these answers, your accountant and your financial team will want to review audited year-end financial statements and tax returns for three years. If the business owner doesn’t make this information available, that is a red flag.

You’ll also want your attorney to review the company’s existing contracts and leases, any industry regulations that pertain to the business and any lawsuits that are ongoing or in the past.

Beyond these initial questions, you’ll want to look at the following:

  • Is the market stable or is it diminishing?
  • What market share does the business have and who are its key competitors?
  • What are the company’s marketing methods?
  • What is the sales history over the past few years?
  • Does the company own any intellectual property?
  • Does the company own its buildings? Can you assume the mortgage or a lease? What are the terms?
  • What are customers saying about the business on social media? Does it have a rating from the Better Business Bureau?
  • Are key employees likely to stay after the sale?
  • What are the employee benefits? What is the pay scale?

Buying a business is a huge step. A consultation with your attorney and accountant before making the jump would be valuable.