Howdy GirdleyWorld!
When you’re buying a business, you become a fact-finding machine. But it’s a seller’s market, so when you get their time you want to ask high-value questions.
- My top 12 questions to ask when buying a business
This is a sneak peek from my new course, How to Find a Great Business to Buy.
Finding the right business is the hardest part of any search — so I made 2+ hours about crafting your thesis, running outreach, and getting your funnel flowing.
It’s a short course, but it’s absolutely packed. (This newsletter comes from just 3 minutes of lesson 3.3!)
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Seller and broker conversations can be some of the highest ROI time you spend searching.
Come armed with the right questions, and you’ll learn a thousand times more than walking in unprepared.
These are some of my favorites that get to the core of how a business is really doing.
So next time you’re talking to a seller or broker, try asking them…
1. What happens if you raise prices?
You could also frame this as, “What happened the last time you raised prices?”
This lets you understand how much pricing power they have.
If your costs go up, you need room to raise prices without your customers running for the door. If you can’t, that’s a scary thing you should know before you buy the business.
2. What are your biggest problems right now?
This one is super straightforward. You want to know what you’re walking into.
And if a seller says they have no problems, that’s a huge red flag. It means you should listen very closely to their answer to the next question…
3. Why are you selling the business?
Why are they getting out?
There are lots of good reasons, like major life changes (kids, health, retirement) or partnership disputes, where maybe the current owners can’t agree on direction.
There are bad reasons too, like headwinds in the industry, strong competitors, or legal trouble.
You’re probably less likely to hear the bad reasons. So the important thing is, it should all make sense. If you can’t figure out why they’re selling, trust your gut that something is wrong.
4. Why do customers love the product? How do you know?
Why should they choose this business’s product over the competition? You want to hear that this business has some differentiation.
This is a place to look for a defensive moat (which I’ve written about before).
5. Why am I the lucky buyer/investor? (Ask yourself this, too!)
There’s two ways to use this question.
First, you should ask yourself. Why hasn’t this deal been snapped up already? It’s possible you ran the best outreach or got there the fastest. But maybe it’s been on the market for months because other buyers see a weakness you haven’t spotted yet. Be wary of a great deal.
But I’ve asked sellers directly: why are you considering me? You might learn something about your own process.
6. When you win deals, why? How do you know?
7. When you lose deals, why? How do you know?
I like these two questions because you get information no matter what.
If they have a good answer, you learn about the business’s strengths and weaknesses.
If they don’t have a good answer, it’s a sign that management might be asleep at the wheel. Which could be a great opportunity for a new owner to shake things up a bit.
8. What are the biggest impediments to growth?
Typically, small businesses are small for a reason. You want to find out why this one has stayed small before you buy it.
9. Pretend you have to fire everyone but three people. Who do you keep?
10. Pretend you must reduce staff by three tomorrow. Who do you let go?
The first question tells you the stars on the staff, so you can keep them around if you take over.
The second question tells you some of the dead weight management might be keeping around because they’re asleep at the wheel.
And again, you don’t have to take these answers at face value. If the seller doesn’t seem to have an excellent grasp on the business, factor that in.
11. What keeps you up at night?
This should be something that any decent management can answer in a heartbeat. They’ve lived through it, maybe for years or decades.
It could be a current problem they’re struggling to solve, or something on the horizon.
If you feel confident you can solve this problem, the seller is a great person to validate your ideas. Challenge your own assumptions.
12. What would happen if you didn’t come into work for 6 months?
This tells you how seller-dependent the business is. If the business falls apart when the seller walks away, that’s a big problem you’ll have to solve.
Because usually, you’ll get at most a few months’ transition period before you’re on your own.
When you’re looking for a business to buy, broker and seller calls can be a lot of fun. It’s getting to that point that can be a real slog.
In today’s market, you’re competing with tens of thousands of other business buyers. Running your search is the hardest part. Which is why I built this course.
This was a sneak preview of lesson 3.3 from my new course (which actually has 14 questions, not 12!). If you liked it, check out the whole thing at girdley.com/greatbusiness.
If you’re not sure, here’s a few early reviews:
3 things from this week
Appetizer: I asked my Twitter followers for their “insulting / contentious questions”, and got some good ones.
- If you run a successful holding company, why are you hawking courses?
- What’s up with all the Chili’s jokes?
- Why haven’t you gotten hair plugs yet?
Read my answers in the thread!
Main: My friend Jason Cohen writes an awesome newsletter. Sometimes they’re deep dives, sometimes they’re quick thoughts. They’re always interesting.
His latest send challenged our obsession with “Top 10” lists, and proposed some alternative “list lengths”. Here’s a few:
1: Focus. It’s reductive to say only one thing is important, but it also ensures that it gets done, as quickly as possible. [...]
7: Because 7 ± 2. From one of the most-cited papers in psychology, seven items is what the average person can keep in their head simultaneously. If you can’t keep it in your head, even when you’re trying very hard, it’s too many items. [...]
402,302: Bankruptcy. An inbox with this many unread emails is the same as an inbox with no unread emails, except a number looms over your head. Declare “bankruptcy”—whether it’s the email inbox or the Jira backlog. Archive it all. The important things will come back.
Read the whole post here - or one-click subscribe! (You won’t regret it.)
Dessert: Survey says…
If you have your own contentious questions, hit reply! Maybe I’ll do a “reader questions” issue sometime soon.
Have a great week!
Michael
