Business Acquisition Questionnaire

You’ve heard about a business for sale. It’s in a field you know something about. So you grab your checkbook. Whoa, not so fast! The next thing you must do is to begin to gather information by interviewing the owner of the business. The attached questionnaire is just to get you started thinking about the kinds of things you will want to know.


This form is for your use.  Better not confront the owner with a formal document like that.  Maybe just make notes on a yellow pad during the first interview and transcribe the information to your questionnaire later.  Be agreeable to signing a ‘confidentiality agreement’ if one is offered.  This will help the owner be more willing to release information. It may be that the owner has contracted with a Business Broker to help sell the business.   Don’t forget the broker is paid by the seller and is, therefore, not a member of your team, though he can be very helpful, at least initially, in the process.

The first thing you’ll want to know is why does the present owner want to sell?  If he or she looks to be in the prime of life and says, “I want to retire, “ or  “ I just want to get into something else,” these may be code phrases for, “I’m losing money and want to get out while the getting’s good,” or “I’ve got a real problem coming up that threatens the whole business.”  Start with skepticism and work your way to optimism if the buying opportunity ultimately seems worthwhile.

At some point you’re going to want an accountant with business purchase experience to review the information you are gathering, to pose other questions and ultimately to suggest the purchase price and terms that you might offer the owner.  If you do a good job of obtaining needed information up front you will save the accountant time and you, some expense.  Such other things as ‘goodwill’ and a ‘non-compete agreement’ are considerations that both your accountant and your attorney will need to address. 

You must secure, if possible, five and a minimum of, three years of Balance Sheets, Income Statements and Cash Flow Statements and the Federal Tax returns for the same years.   One incidental reason for doing this is to make a Cash Flow spreadsheet on cash sales, cost of sales, expenses, non-continuing expenses and the related margin percentages for these years.   What you will learn with this exercise is: (1) Are sales trending upward?  Downward?   Holding steady?  (2) Are margins typical for this type of business?  If so, do they remain in a reasonable range?  (3) What is the net cash flow of this business and how does it vary over time?  You must have some type of financial and cash flow information at this point in order to proceed further.

Net cash flow is the crux of the matter!  The business is going to be worth some multiple of the free cash that is left on the bottom line before tax.  This figure is not always what the financial statements suggest.  You may find that the business has been paying for the owner’s country club dues, or a fancy car or Aunt Susie is on the payroll, but her duties are unspecified and she never comes to work.   You can eliminate expenses that would not continue, if you owned the business.  Of course, you have to figure on paying yourself as well as expensing the cost of this business over a reasonable period of time, like five or six years.  The way we do this in the formula is to use gross expense (a minus) and then add-back the non-continuing expenses (a plus).

There two phases to buying a business.  The first phase is reaching the point where you and your supporting cast of accountant and lawyer are reasonably comfortable in making an offer for the business, contingent on the second phase, which is called due diligence, where you prove out the numbers you have been given with solid financials and really poke your nose into the details of the business! Remember, though it is OK to buy a business with the expectations of what you can do to improve it, you should only pay as much for the business as it is worth today!

Not a complete list by any means, but some questions to ask and things to think about:

1.Why does the owner want to sell?  Do you believe the answer?

2.Does the owner, or his broker, freely offer the requested financial information or just summaries?

3.If the business is incorporated, buy certain assets, like inventory, equipment, machinery, etc., not the corporation itself.

4.You don’t want to buy accounts receivable.

5.You can buy the use of the business name even if it was part of the former corporate name.

6.Do check out the leases on rented property.  How many years to run?  If the term is short, negotiate renewal with the lessor before buying the business.

7.Does the former owner own the building? Are you buying the building?  If not, is the rental to be charged reasonable in the marketplace?

8.Owner wants you to buy the machinery and equipment in addition to buying the business.  Using the multiple of free cash flow approach to buying a business, the machinery and the inventory is integral to the generation of cash, not a separate subject for negotiation.

9.Will the owner stay on for a reasonable period; say 90 days?  This reinforces the credibility of the owner.

10.Have you identified all the key employees?  Will they stay on? 

11.Which employee benefits, like health insurance, are company paid?   Are any paid by contract?

12.Have you identified any single customers accounting for 5% or more of sales?  Will they stay with you?

13.Are there any suppliers of products or services that, if lost, would negatively affect the business?

14.Does this business have insurance or bonding issues that will be difficult to solve?


There’s a wonderful, easy to read, book on this subject, Buy a Business Close to Home-The Secret to Building Wealth by Bill Smith, available on line at or in your book store.

For a wealth of information for entrepreneurs including links to a site where you can benchmark the margins of your proposed purchase, go to the Ewing Marion Kauffman Foundation’s web site,

Download the eguide to view the questionnaire.