Questions to Ask When Buying a Business

Questions for the seller

Start here, because the seller's motivation shapes everything else — how hard they will negotiate, whether they will finance part of the price, and how long they will stay to transition.

• Why are you selling, and why now? Ask at first meeting, again at LOI, and once more in diligence. Consistency matters more than the content.
• What have you already tried to sell it for, and for how long? A listing that has sat for eighteen months at a price nobody paid is a data point about the price.
• Has it been under contract before? What happened? A prior buyer who walked during diligence found something. Ask what.
• What do you do in the business each week, hour by hour? The answer becomes your job description or your first hire's salary.
• What would you fix if you were staying five more years? Sellers answer this honestly more often than they answer "what are the problems."
• Will you carry a seller note, and are you willing to stay for a transition period? Reluctance to do either, in a business the seller describes as healthy, is worth understanding.
• What is your walk-away number, and what is it based on? If the price traces to a broker's rule of thumb rather than the earnings, you have room.

Questions about the numbers

These are the ones you ask in writing, because you want the documents attached to the reply.

• Three years of business tax returns and the matching P&Ls — can you reconcile the differences? Sellers present the P&L to buyers and the return to the IRS. The delta is informative.
• Which add-backs are built into the asking price, and can I see each as a general ledger line? Untraceable add-backs are negotiating positions, not earnings.
• Is the asking price a multiple of SDE or of EBITDA? Mixing the two is the single most expensive small business valuation error. See SDE vs EBITDA.
• Revenue by month for thirty-six months, please. Annual totals hide seasonality, a declining trailing twelve, and a fat final quarter engineered for the sale.
• What is the accounts receivable aging, and what has been written off in each of the last three years?
• What maintenance capital expenditure do the assets require annually? Depreciation is added back in both earnings metrics; the machines still wear out.
• What is normal working capital, and is it included in the price? Discovering it is not, after the LOI, is a real and common surprise.
• Are there any related-party transactions — a building owned by the seller, a supplier owned by a relative? Below-market rent to yourself inflates earnings.

Questions about customers and revenue

Concentration is the risk that kills otherwise good small acquisitions, and it is invisible in a P&L.

• What share of revenue comes from the top five customers, in each of the last three years?
• Which relationships are personal to you rather than to the business?
• Which customers are under written contract, and when does each renew?
• Has any significant customer given notice, cut volume, or gone to bid in the last twelve months?
• Where does new business come from — referrals, search, a salesperson, one channel? A single channel you do not control is a concentration risk of its own.
• What is the repeat rate, and how long does an average customer stay?

Questions about staff and operations

You will rarely be allowed to talk to employees early, and that is a normal confidentiality request rather than evasion. Ask the seller these, then verify in the late-stage conversations you make a closing condition.

• Who actually runs the day-to-day if you are away for three weeks?
• What is each key person paid, how long have they been here, and are any paid under market? An under-market key employee is a raise you inherit.
• Who has an employment agreement, a non-compete, or a handshake understanding about the sale?
• What is turnover in the last three years, and which roles are hardest to fill?
• Are workers classified as employees or contractors, and on what basis? Misclassification is a liability that travels in a stock purchase.
• Which systems, licences, and accounts are in your personal name? Domains, payment processors, software seats, and trade licences frequently are.

Questions about assets, lease, and legal

• How many years remain on the lease, and does it assign to a buyer without landlord consent? A retail or service business with eleven months left is a different asset than one with eight years and options.
• What equipment is owned, leased, or financed, and what is the age of each major item?
• Are there liens on the assets, and will the seller deliver clear title at closing?
• What licences, permits, or certifications does the business hold, and are they transferable or must I requalify? In trades, this determines whether you can legally operate on day one.
• Any litigation, insurance claims, or regulatory actions in the last five years, closed or open?
• Are you willing to sign reps and warranties covering these answers, with an indemnity escrow? The willingness to stand behind an answer in writing is the real test of it.

Questions for the broker

Remember who they work for. In most small business listings the broker is paid by the seller, on a percentage of the price.

• Who do you represent, and how are you compensated on this deal?
• How was the asking price set, and against which earnings figure?
• How long has this been listed, and how many buyers have gone to LOI?
• What diligence materials are already assembled and ready to share after the NDA? A prepared data room signals a serious, well-run process.
• What is the seller's timeline and flexibility on structure?

How to use the answers

Write the answers down with the date. Then, in diligence, check them against documents rather than against your memory of the conversation. Three-quarters of what you find will confirm the story. The remaining quarter is where you either re-price, restructure, or walk — and having the original answer in writing makes that conversation a factual one instead of an argument.

When the answers do not line up, do not treat it as a scandal. Sellers of small businesses are usually operators, not finance people, and genuine sloppiness is more common than fraud. The question is whether the discrepancy changes the earnings. Our financial verification guide covers how to test the revenue and earnings claims specifically, red flags when buying a business covers the findings that should end a deal, and the due diligence checklist is the document request list itself.

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