First-Time Business Buyer's Checklist

Sellers will tell you what you want to hear. Your job is to ask questions that reveal what you NEED to hear.

Here are the critical questions that experienced buyers ask—and the follow-up questions that prevent sellers from dodging.

## About the Sale

### Q1: "Why are you selling?"

**What They'll Say:**
- "Retiring"
- "Moving"
- "Other opportunities"
- "Health reasons"

**Your Follow-Up Questions:**
```
- How long have you been planning to sell?
- What are those "other opportunities"?
- If the business is doing great, why not hire a manager and keep collecting profits?
- What would make you change your mind about selling?
- If I offered 20% more, would you stay?
```

**What You're Really Learning:**
- Is there an urgent reason (problem) they need to sell?
- Are they actually committed to selling?
- Do they believe in the business's future?

**Red Flags:**
- Vague or changing reasons
- Urgency without explanation
- Won't let you verify their reason
- "Just ready to move on"

### Q2: "How long have you been trying to sell?"

**Why It Matters:** Long time on market = problem with business or price

**Follow-Up:**
- What was your original asking price?
- How many offers have you received?
- Why didn't previous deals close?
- What feedback have you gotten from other buyers?
- What concerns did they have?

**Red Flags:**
- On market 12+ months
- Multiple price reductions
- Deals fell through in due diligence
- Won't discuss previous buyers

### Q3: "What's the biggest risk to this business?"

**What They Should Say:** Every business has risks. Good sellers are honest about them.

**Follow-Up:**
- How likely is that risk to occur?
- What have you done to mitigate it?
- What would happen if it occurred?
- Any other major risks?

**Red Flags:**
- "There really aren't any risks"
- Defensive about the question
- Minimizes obvious risks
- Won't discuss potential problems

## About Revenue

### Q4: "Walk me through your revenue trends over the last 3 years."

**What to Listen For:**
- Do they know details without looking?
- Is revenue growing, flat, or declining?
- Can they explain seasonal patterns?
- Do they understand what drives revenue?

**Follow-Up:**
```
- What was revenue each year? Each quarter?
- What explains changes year-over-year?
- How is this year tracking vs. last year?
- What's your best/worst month typically?
- Why?
- Have you lost any major customers recently?
```

### Q5: "What percentage of revenue comes from your top customer? Top 3? Top 10?"

**Healthy Business:** Top customer <10%, Top 3 <25%, Top 10 <40%

**Follow-Up:**
- How long have they been customers?
- Do you have contracts with them?
- What would happen if your top customer left?
- Have they ever reduced their orders?
- Any concerns about their financial stability?
- Will they stay after you sell?

**Red Flags:**
- One customer >25% of revenue
- Recent orders declining
- Short-term contracts or no contracts
- Seller can't/won't facilitate introduction

### Q6: "What's driving your revenue—new customers or repeat business?"

**Follow-Up:**
- What percentage of revenue is repeat customers?
- How many new customers per month?
- What's your customer retention rate?
- Why do customers leave?
- How much do you spend on customer acquisition?

**What You're Learning:**
- Is revenue sustainable?
- How hard is it to maintain revenue?
- What will YOU need to do?

## About Expenses & Profitability

### Q7: "Walk me through your major expense categories."

**Watch For:**
- Do they know their numbers?
- Any unusual or suspicious expenses?
- Personal expenses mixed in?
- Expenses that seem too low?

**Follow-Up:**
```
- What's your typical gross margin?
- What's your largest expense category?
- Have any expenses increased significantly lately?
- Are there any owner expenses in the business?
- What expenses will change with new ownership?
```

### Q8: "What expenses will I have that you don't currently have?"

**Common Differences:**
- Owner salary vs. manager salary
- Health insurance
- Professional services (accountant, attorney)
- Marketing (if owner did it)
- Rent (if owner owns the building)
- Equipment (if outdated and needs replacement)

**Follow-Up:**
- What's a market-rate salary for a manager?
- What marketing has been effective?
- What's the market rent for this space?
- When will equipment need to be replaced?

### Q9: "What's your true owner benefit?"

**Formula They Should Know:**
```
Net Income
+ Owner Salary
+ Owner Benefits
+ Owner Personal Expenses
+ Interest (if you won't have it)
+ Depreciation & Amortization
+ One-Time Expenses
- Market-Rate Manager Salary
= True Owner Benefit
```

**Follow-Up:**
- Can you show me this calculation?
- What one-time expenses are you adding back?
- Why were those expenses one-time?
- What personal expenses are in the business?

## About Operations

### Q10: "How many hours per week do you work in the business?"

**Be Skeptical:** Most sellers claim "hardly any" to make it look easy

**Follow-Up:**
- Walk me through your typical week
- What do you do each day?
- Who handles X when you're not here?
- Can I shadow you for a week before closing?
- What happens if you're gone for 2 weeks?

**Verification:**
- Actually shadow them
- Talk to employees (they'll tell you the truth)
- Review email volume and times
- Check phone records

### Q11: "Which employees are critical to operations?"

**Follow-Up:**
- How long have they been here?
- What happens if they leave?
- What's their compensation?
- Do they know the business is for sale?
- Will they stay after the sale?
- Can I meet with them?

**Red Flags:**
- One person is essential
- Recent high turnover
- Key employees looking to leave
- Low wages (people will leave)
- Seller won't let you talk to them

### Q12: "What parts of the business do only you know how to do?"

**Follow-Up:**
- How will I learn that?
- Is it documented anywhere?
- Who else knows how to do it?
- How long will it take me to learn?
- Can you train me?

**Red Flags:**
- "Actually, a lot of things"
- Critical procedures not documented
- No one else knows key processes
- Short transition period offered

## About Customers

### Q13: "Why do customers choose you over competitors?"

**Good Answer:** Specific competitive advantages

**Follow-Up:**
- What do customers say they value most?
- How do you know this?
- What would make them switch to a competitor?
- Have you lost customers to competitors? Why?
- What are your competitors doing better?

### Q14: "What's your customer complaint rate?"

**Follow-Up:**
- What do customers complain about most?
- How do you handle complaints?
- Any recurring issues?
- Any current unhappy customers?
- Ever been sued by a customer?

### Q15: "How do you acquire new customers?"

**Follow-Up:**
- What's your best marketing channel?
- How much do you spend on marketing?
- What's your customer acquisition cost?
- What have you tried that didn't work?
- Where do most referrals come from?

**What You're Learning:**
- Can you replicate their customer acquisition?
- How much will you need to spend?
- Is growth possible?

## About Competition

### Q16: "Who are your main competitors?"

**Follow-Up:**
- What do they do better than you?
- What do you do better than them?
- How do they price vs. you?
- Any new competitors entered the market?
- Any competitors gone out of business?
- What keeps you up at night about competition?

### Q17: "What would you do differently if you were starting over?"

**What You're Really Asking:**
- What hasn't worked?
- What are the weak points?
- What mistakes have been made?

**Listen For:**
- Honest reflection
- Specific examples
- Things that still need fixing

## About the Future

### Q18: "What's the biggest opportunity for growth?"

**Follow-Up:**
- Why haven't you pursued it?
- What would it cost to pursue?
- What's the timeline to see results?
- What are the risks?
- Do you think it's worth pursuing?

**Red Flags:**
- "You could easily double revenue by..."
- Unrealistic growth projections
- "I just haven't had time"
- If it's so great, why didn't THEY do it?

### Q19: "What's changing in the industry?"

**Follow-Up:**
- How will that affect this business?
- What are you doing to prepare?
- What's the biggest threat to the industry?
- Where is the industry headed?
- Will this business be viable in 5 years?

### Q20: "What should I know that I haven't asked about?"

**Listen For:**
- Do they volunteer important information?
- Are they transparent?
- Do they try to help you make a good decision?

**Red Flags:**
- "I think we've covered everything"
- Dismissed important topics
- Evasive all throughout

## How to Ask Questions Effectively

### Do:
- ✓ Ask open-ended questions
- ✓ Stay silent after asking—let them fill the silence
- ✓ Ask follow-up questions
- ✓ Take detailed notes
- ✓ Ask the same question different ways
- ✓ Circle back to inconsistencies
- ✓ Ask "why" and "how do you know"

### Don't:
- ✗ Accept vague answers
- ✗ Let them change the subject
- ✗ Skip uncomfortable questions
- ✗ Accept "trust me"
- ✗ Be afraid of offending them
- ✗ Rush through the questions

## Reading Between the Lines

**Warning Signs in How They Answer:**

**Evasive:**
- Doesn't directly answer
- Changes the subject
- Gets defensive
- Says "I'll get back to you" (and doesn't)

**Overly Positive:**
- No weaknesses
- No risks
- No problems
- Everything is perfect

**Inconsistent:**
- Story changes
- Numbers don't match previous statements
- Contradicts documents

**Rushed:**
- Wants to skip this
- "We can discuss later"
- Pressures you to make offer

## Verify Everything

**Don't Just Take Their Word:**

**They Say → You Verify**
- Revenue is $X → Tax returns
- Profit is $Y → Financial statements
- 100 customers → Customer list
- Low turnover → Talk to employees
- Equipment is great → Professional inspection
- Lease is fine → Read the entire lease
- No legal issues → Public record search

## Your Question Strategy

**First Meeting:**
- Big picture questions
- Gauge honesty and transparency
- Identify major red flags
- Decide if worth pursuing

**During Due Diligence:**
- Detailed follow-up questions
- Verify previous answers
- Dig into concerning areas
- Ask experts to help you ask better questions

**Before Closing:**
- Final verification questions
- Address any remaining concerns
- Confirm nothing has changed

## Download Our Tool

**Seller Questions Tracker Template:**
- Complete list of questions
- Space for answers
- Follow-up questions
- Verification checklist
- Red flag tracker

## The Bottom Line

Good questions reveal truth. Great follow-up questions prevent evasion.

**Remember:**
- Sellers present the best version of the business
- Your job is to find the real version
- Questions are your best tool
- Don't be afraid to ask
- Verify every answer

If a seller gets defensive about questions or won't provide detailed answers, that's your answer—walk away.

Professional buyers ask tough questions. You should too.