EVALUATING A BUSINESS TO PURCHASE
Before you decide to purchase a business, there are a number of issues to consider. Perform an in-depth
due diligence review, and get the answers to the following questions. They will help you determine
whether the business is a sound and worthy investment.
1. Why is the owner selling?
2. Have you been provided with accounting information, tax returns, financial statements for the
past five years (or less, if the business has not operated for that long)?
3. What revenues did the business generate over the last five years? If losses, how deep were the
losses? Can the business be made profitable?
4. What is the outstanding amount of each of the business’ debts, what is the regular payment
amount for each, and what is the status of each (i.e. are the payments up to date)?
5. What is the current status of the accounts payable? With respect to each account payable, does
the business pay net 30, net 60 or some other arrangement?
6. What is the current total of accounts receivable? What percentage of this total is over 60 days?
Over 90 days? Older than 90 days?
7. How much has the business written off as bad debt over each of the last five years?
8. How large is the customer base? What level of customer loyalty has the business maintained?
9. Is the current customer base primarily local? Is location a factor?
10. Is a large percentage of the business revenue generated by one or two large customers? If so,
what would be t