Questions to Ask a Broker When Buying a Business
Questions to put to a business broker while you are evaluating a listing. They cover who the broker represents, why the owner is selling, where the numbers came from, customer concentration, how much of the business depends on the owner personally, the lease, deal structure and the transition.
The questions
Open any question for the note
Who are you representing in this deal, and who pays your fee?
Why ask it
In most listings the broker has a contract with the seller and is paid a percentage of the price, which means their duty runs the other way. Ask it in the first meeting so that every later answer can be read in that light, and note whether they volunteer it or you have to ask twice.
Why is the owner selling, and what did they say when you first met?
Why ask it
Retirement, health and divorce are common and checkable. The version to be careful of is a vague answer about pursuing other interests from an owner in their forties, which often turns out to mean a lost contract, a new competitor or a lease ending.
How long has this been listed, and has it been under offer before?
Why ask it
A listing that has sat for a year at the same price is telling you what the market thinks. A deal that has collapsed twice is more informative still, because whatever killed it is probably still in the business.
If a previous deal fell through, what happened?
Why ask it
Brokers usually attribute it to financing, and sometimes that is true. Ask what the buyer found in diligence, since that is a free preview of what you are about to spend money discovering yourself.
What will I get in diligence, and at what point do I see the tax returns?
Why ask it
You want a document list with timing attached: profit and loss, balance sheet, tax returns, bank statements, aged receivables, payroll register, lease. If tax returns only appear after a signed letter of intent, plan your exclusivity period around that.
Are these figures from filed tax returns or from the owner's own bookkeeping?
Why ask it
The two frequently disagree, and the gap is where the deal lives. Ask which one the asking price was based on, and expect the answer to be the more flattering of the two.
Walk me through the add-backs in this adjusted earnings figure, line by line.
Why ask it
Seller's discretionary earnings is built by adding items back to profit, and some of those items are real expenses the next owner will still pay. Watch for a manager's salary added back when the owner does that work, family members on payroll, and one-off costs that have appeared three years running.
What share of last year's revenue came from the top three customers?
Why ask it
Any single customer above roughly a fifth of revenue changes what you are buying and what a lender will accept. If the broker does not have this number to hand, they have not run this analysis, which tells you how the listing was prepared.
Which customers are under contract, and which simply keep coming back?
Why ask it
Recurring revenue and habitual revenue look identical on a profit and loss statement and behave completely differently after the owner leaves. Ask for contract end dates and whether any contain a change of control clause.
How many hours a week does the owner work, and what do they do that nobody else can?
Why ask it
Owner dependency is the most common reason small acquisitions disappoint. Specifics matter: if the owner holds the customer relationships, the pricing decisions, or the trade licence, you are buying a job with debt attached rather than a business.
What would it cost to hire someone to do what the owner does?
Why ask it
Subtract that figure from the earnings before you value anything, and see what is left. A broker who resists doing this arithmetic with you has just told you the answer.
Which employees know the business is for sale?
Why ask it
Usually the answer is none, which shapes how diligence has to be run and means you cannot verify anything by talking to staff. Ask when they will be told and who is expected to leave when they are.
What are the lease terms, and does the landlord have to approve a transfer?
Why ask it
Remaining term, rent, renewal options, personal guarantees and the assignment clause all sit between you and a working business. A location business with eighteen months left and a landlord who can refuse the transfer is not really for sale at that price.
Which supplier, distribution or franchise agreements do not transfer automatically?
Why ask it
Exclusive territories, dealer agreements and favourable supply terms are often personal to the current owner and quietly renegotiated with a new one. Ask whether anyone has actually spoken to the counterparties.
What licences and permits does this business need, and are they transferable?
Why ask it
Liquor licences, trade licences, professional registrations and health permits vary by jurisdiction and some require a qualified individual on staff. This is a common reason closings slip by months, so ask who is handling it and when it starts.
What is included in the price, and what is the owner keeping?
Why ask it
Vehicles, tools, inventory levels, the phone number, the domain, the social accounts and the customer list all get argued about after an agreement in principle. Get a written schedule of what is in, and ask what inventory level is assumed.
Is this an asset sale or a share sale, and why has it been set up that way?
Why ask it
The structure moves tax and liability between the two of you, and the seller's preference is rarely yours. Their reasoning is worth hearing, then worth checking with your own accountant rather than taking from the broker.
How was the asking price set, and what have comparable businesses actually sold for?
Why ask it
You want the multiple used, what it was applied to, and where the comparables came from. Industry rules of thumb are a starting point rather than a valuation, and a broker who cites one without adjusting for owner dependency or customer concentration is anchoring you.
What seller financing or earnout is the owner open to?
Why ask it
An owner who will carry part of the price is staking their own money on the numbers being real, which is the strongest signal available. Flat refusal is not disqualifying, but the reason given should make sense.
What does the transition look like: how long does the owner stay, and on what terms?
Why ask it
Get weeks, hours and whether it is paid, and get it into the agreement. Ask about a non-compete too, including its geographic scope and length, because without one the owner can be back in the market before your first quarter closes.
If you were buying this business yourself, what would you look at hardest?
Why ask it
Asked late and calmly, brokers often answer this one honestly, partly because it lets them show expertise. Whatever they name is worth putting at the top of your diligence list, and their reluctance to name anything is itself an answer.
Working with a broker on the buy side
Practical guidance for the conversation itself
Understand the position you are in
The listing broker is not your adviser
They are usually engaged by the seller and paid on completion, so they are motivated toward a sale at a good price rather than toward your protection. That does not make them dishonest; it means their summary of the business is marketing material and needs verifying line by line.
Assemble your own side before you make an offer
An accountant who has done quality of earnings work on businesses this size, and a lawyer who has closed asset purchases, will pay for themselves in the first week. Retain them before the letter of intent, because that document sets the exclusivity clock and the deal structure.
Ask everything in writing where you can
Email the important questions and keep the replies. Representations made in writing during diligence matter later, and it also encourages a broker to check with the owner rather than answering from memory.
Talk to people the broker did not choose
Suppliers, the landlord, former employees and customers, where confidentiality allows, will describe a different business. Ask the broker what you are permitted to contact and when, and negotiate that permission before you sign exclusivity.
Two short sequences
First conversation, before you spend money
- 1Who are you representing in this deal, and who pays your fee?
- 2Why is the owner selling, and what did they say when you first met?
- 3How long has this been listed, and has it been under offer before?
- 4How many hours a week does the owner work, and what do they do that nobody else can?
Once you are serious about the numbers
- 1Are these figures from filed tax returns or from the owner's own bookkeeping?
- 2Walk me through the add-backs in this adjusted earnings figure, line by line.
- 3What share of last year's revenue came from the top three customers?
- 4How was the asking price set, and what have comparable businesses actually sold for?
Where buyers get hurt
Valuing adjusted earnings without testing the adjustments
Adjusted or discretionary earnings is a constructed number, not a reported one. Rebuild it yourself from the tax returns and bank statements, and treat every add-back as a claim until you have seen the invoice behind it.
Signing a long exclusivity period too early
Exclusivity stops you looking elsewhere while the clock runs on your own costs. Keep it as short as your lender and accountant can work within, and tie it to receiving specific documents rather than to a date alone.
Ignoring the lease and the licences until the end
Landlord consent and permit transfers are outside both parties' control and take the longest. Start them in parallel with financial diligence, not after.
Forgetting the working capital you will need on day one
Payroll, rent and supplier terms all come due before the receivables you inherit turn into cash. Ask what working capital is included in the sale and model your first ninety days separately from the purchase price.