Questions to Ask About a Business
Questions for an owner or manager when you are considering buying, joining, investing in, or partnering with a business: how it makes money, what it owes, where the risks sit, and how much of it depends on one person.
The questions
Open any question for the note
How does the business make money, and which part of it makes the most?
Why ask it
Owners tend to describe the business they wish they had. Asking which line earns the most separates the story from the accounts, and the profit often turns out to sit in an unglamorous service rather than the flagship product.
What were revenue and profit last year, and in the two years before that?
Why ask it
Three years shows a direction that one year hides. Notice whether the figures come from memory or need looking up, and whether profit is quoted before or after the owner's own pay, which can change the picture entirely.
Who are your five biggest customers, and what share of revenue do they account for?
Why ask it
Concentration is what kills small businesses. Any single customer above roughly a quarter of revenue means you are buying a relationship rather than a business, and the next thing to establish is whose relationship it is.
Which customers left in the last year, and why?
Why ask it
Departures are where the weaknesses are, and owners nearly always attribute them to price. Ask whether you can speak to one of them, and pay as much attention to the reaction to that request as to the answer itself.
How do new customers find you, and what does it cost to get one?
Why ask it
A specific answer, referrals from two named partners, a channel, paid advertising with a known cost, means growth can be repeated. "Word of mouth" usually means nobody knows, which makes any growth forecast guesswork.
How much cash is in the business, and how long could it run without new sales?
Why ask it
Runway is a fact rather than an opinion, and it sets the pace of everything else you negotiate. A business that cannot survive one slow quarter needs very different terms from one holding several months of costs.
What does the business owe, to whom, and on what terms?
Why ask it
Ask about loans, leases, tax arrears, supplier balances, and personal guarantees. Debt you would inherit is part of the price, and personal guarantees have a habit of appearing for the first time at signing.
Which parts of this depend on you personally?
Why ask it
Sales relationships, technical knowledge, and goodwill with suppliers held by one person are the most common reason an acquired business loses value in its first year. Ask what would happen if they were unreachable for a month.
Who would leave if you did?
Why ask it
Key staff often follow the founder out, because their loyalty was to a person rather than to the company. The answer names the two or three people you should be talking to before you commit to anything.
What do you charge, and when did you last raise prices?
Why ask it
Reluctance to raise prices is one of the most common problems in small businesses, and it usually comes from a fear that customers are buying on price alone. A recent increase with little customer loss suggests more room than the owner believes.
Where do the margins actually come from?
Why ask it
Plenty of owners cannot separate a high-revenue product from a profitable one. If nobody can give you margin by product, job, or customer, then every number you get from this business will remain an approximation.
What could put this business in serious trouble within a year?
Why ask it
Putting the risk in their own words tells you more than a list you propose. Whether they name a single customer, a platform they depend on, a regulator, or a key employee shows you where they know the weight is resting.
Which competitor worries you, and what do they do better?
Why ask it
Dismissing all competitors is a warning in itself. Naming one and describing what it does better shows an owner who watches their market, and it tells you where you would have to spend money to catch up.
What have you tried that did not work?
Why ask it
Failed experiments show that the business has tried to grow and where the ceiling was. An owner who reports no failures has usually attempted nothing new for several years, which is its own kind of answer.
What is broken that you have not got round to fixing?
Why ask it
Every business has a list: deferred maintenance, an ageing system, a hire that did not work, a process held together by one spreadsheet. Candor here is a good sign; a claim that nothing needs attention usually means you are being managed.
What does the busiest week of the year look like, and the slowest month?
Why ask it
Seasonality determines cash needs and staffing, and annual figures hide it completely. If the answer suggests large swings, ask for monthly revenue for the last two years rather than yearly totals.
Who are your suppliers, and how easily could you replace the important ones?
Why ask it
Single-source suppliers, exclusive distribution rights, and informal terms based on a personal relationship all transfer badly. Ask what a replacement would cost and how long it would take to get one approved or qualified.
What licenses, contracts, or approvals does the business depend on, and when do they renew?
Why ask it
Leases, franchise agreements, software contracts, and permits sometimes do not transfer with a sale, or renew on worse terms once ownership changes. The renewal dates matter as much as the terms themselves.
Why are you selling, or why do you want a partner now?
Why ask it
The stated reason sets the whole negotiation, so test it against the figures. A business described as thriving but being sold in a hurry usually has a third reason that has not been mentioned yet.
If I started tomorrow, what would you want me to fix first?
Why ask it
This invites an honest priority and shows you where the daily frustration lives. It also reveals whether the owner has a plan or simply hopes someone else will take over the parts of the job they no longer want.
Looking at a Business Properly
Practical guidance for the conversation itself
Verify rather than believe
Match every claim to a document
Revenue should tie to bank statements and tax filings, customer concentration to invoices, staff costs to payroll records. An owner who resists showing the underlying records is telling you something about the records.
Talk to people who are not the owner
Two customers, two staff members, and one supplier will describe a different business from the one in the pitch. Ask permission first where the sale is confidential, but treat a blanket refusal as a finding rather than an obstacle.
Ask the same question twice, weeks apart
Numbers that shift between the first conversation and the third, without an explanation, usually mean they were estimates the first time. This costs you nothing and catches a surprising amount.
Work out what you are actually buying
Separate the assets, the contracts, the staff, and the owner's personal relationships. Whatever leaves with the owner is not part of what you are paying for, and that distinction is where most disappointing deals are made.
The order that works
- Start with how the money is made, before anything about strategy or vision.
- Ask the concentration and cash questions early, since either can end your interest quickly.
- Leave the questions about the owner's dependence and reasons for selling until some trust exists.
- Save your hardest question for a second meeting, when the rehearsed answers have run out.
- Close each conversation by asking what you should have asked and did not.
Common pitfalls
Falling for the growth story
Projections are free to produce and cost nothing to miss. Judge the business on what it has already done for three years and on the quality of its existing customers, then treat any forecast as an argument to be tested.
Ignoring the owner's own compensation
A business can look profitable because the owner pays themselves nothing, or unprofitable because they pay themselves generously and run costs through the company. Normalize for a market salary before comparing anything.
Skipping the boring documents
Leases, supplier contracts, insurance policies, and employment agreements are where liabilities hide. They are dull to read and they are the part that later determines whether the deal was a good one.