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Conference Room

Questions to Ask When
Buying a Business

You are considering buying a business, but is it really the right move for your business? Before deciding to make an acquisition, there are a series of questions we ask our clients before they 'deep five' into the process. 

Why buy is this business and why buy it now? 
  • Is there a market/opportunity that makes this acquisition essential?

  • Is this a compelling target? What is their uniqueness? Have you looked at other products/providers?

  • What is the size of the market and what market share does the acquisition target hold?

  • Does it fit in with your current (growth) strategy?

  • To what level can the business be grown? What the biggest challenges to growth?

  • What are the industry leaders? Is the company considered a market leader?

  • Does the product or service have a life cycle, or seasonality?

  • What would your customers and competitors say this business does best?

  • What are the possible implications on your business a year from now if you don't make the acquisition?

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Do you know everything you need to know about the seller?
  • How and why was the business started?

  • Why is the business for sale? What is the seller actually selling?

  • What keeps the seller awake at night?

  • Does the seller own the company outright or are there other shareholders who want to sell?

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Is this acquisition in line with your investment strategy?
  • Does the acquisition fit or conflict with your growth strategy?

  • Are you able to fund this acquisition using internal capital or will you need to seek outside funding?

  • What if the deal is not all cash it that a problem?

  • If you need to seek outside funding, what is the message you will deliver to your debt (bank) provider or equity (shareholders) provider when you seek funding for the acquisition from them?

  • Could you generate a higher return on investment with the capital by investing in organic rather than acquisition growth?

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Are any reputational issues addressed?
  • Are there reputational issues affecting the acquisition?

  • Are there any market or sector specific regulatory or ownership restrictions that would make such an acquisition difficult and/or time consuming?

  • If you fail to close the transaction, will there will be an adverse impact to your current business model? Would it result in negative PR? Could a competitor use it against you in discussion with future customers?

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What is the quality of the earnings?
  • What synergy benefits exist?

  • Have they provided management accounts alongside the P&L and Balance Sheet?

  • How far into their financial year are they? How certain are they of achieving their projection for this or next year's forecasted financials?

  • Have they provided any assumptions for future projected earnings? What level of detail do this assumptions go to? Have they put together a comprehensive pipeline of future customers and/or future sales?

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Is this an opportunity for good returns?
  • What synergy benefits exist?

  • Have they provided management accounts alongside the P&L and Balance Sheet?

  • How far into their financial year are they? How certain are they of achieving their projection for this or next year's forecasted financials?

  • Have they provided any assumptions for future projected earnings? What level of detail do this assumptions go to? Have they put together a comprehensive pipeline of future customers and/or future sales?

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How well do you know the management team?
  • What is the existing management team's track record?

  • Do they have a good reputation in their industry?

  • Are your cultural values aligned?

  • Is the team capable of delivering the projected revenue and profit growth, synergies, and running a larger, expanded business?

  • Who will run the business and what ownership considerations have been discussed?

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Exit opportunity, ease, and timing?
  • Is the aim to merge the acquisition or run it as a free-standing entity?

  • How would this entity play in any future monetized transaction?

  • Can it impact/influence beyond its current scope?

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Are there any matters requiring future due diligence investigation?
  • Have you taken references?

  • What are the key assumptions underpinning the investment case? How can these be tested?

  • Have potentially disruptive new technologies, market, or regulatory changes been assessed?

  • Is there any key customer, supplier, or other dependencies? What level of their total sales are made up of their 5 or 10 customers?

  • What are the potential 'left-field' risks?

  • In addition to 'standard' due diligence (accounting, tax, pensions, commercial, legal, environmental) what specific further issues need investigation? 

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Is there competition to buy the business?
  • Are they also talking to our companies?

  • Do you know competing bidders?

  • Will the seller sell at the purchase price assumed or is there a possibility that competition will have an influence on the deal?

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Who will head up and drive the deal?
  • Who will take responsibility for leading the deal?

  • Does the management team have the time to run the existing business while also dealing with the acquisition process?

  • Does the management team have the necessary experience?

  • Have you discussed the acquisition with a corporate finance advisor or your tax accountant?

  • Have you appointed an advisor to assist you in assessing the acquisition? If yes, do they have a track record of success in selling companies in your industry?

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Seeking the help of an M&A advisor early in any acquisition process will ensure you get the best advice possible, saving you time, money, and effort. It also ensures the management team is not distracted, and will continue to run the business - ensuring continued successful financial and strategic performance; minimizing any possible negative impact on existing revenue, sales and customers, resulting from your logical distraction during the acquisition process.   

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