Buying an operating business involves much more than comparing advertisements and asking prices. You need to understand the activity, the transaction structure and the evidence behind each claim. This guide offers a practical starting point for questions and risk assessment.
Practical example
If two customers generate half the revenue, losing one could radically change the business's valuation and financing prospects.
What to check before moving forward
Customer concentration
Examine customer mix and reliance on a few major accounts. High revenue can be fragile if it depends on a single contract or the outgoing owner's personal relationships.
Continuity of contracts
Review important contracts, including expiry, change-of-control and assignment provisions. Continuing a customer, supplier or lease relationship may depend on specific contractual terms.
Accounts and financial history
Ask for several years of accounts and recent management figures, not one isolated number. Reconcile accounting data with tax filings, bank information and segment performance where appropriate.
Valuation methods
Do not treat one valuation multiple as a definitive appraisal. Consider sustainable earnings, assets, risk, growth prospects and genuinely comparable transactions before forming a value range.
Due diligence before signing
Request supporting documents and test the claims made in the listing. A review commonly covers accounts, contracts, employment, tax obligations, licences and material legal risks.
How to use this guide
Start by requesting sources for each important claim and noting what remains unverified. Cross-check answers against records, visit the operation where appropriate and bring material risks to an adviser before committing. Never fill missing financial figures with your own assumptions.
Evidence worth requesting before you proceed
A sales description is a starting point, not proof. These documents help distinguish verifiable facts from expectations:
- Anonymised revenue by customer
- Recurring contracts and customer churn
- Current third-party contracts
Request information appropriate to the negotiation stage and respect confidentiality arrangements. Sensitive documents may be shared only after a buyer is identified.
Final takeaway
A sound transaction starts by defining what changes hands, checking the facts and documenting the agreement. Use this guide as a map of questions, not a replacement for a review tailored to the actual business.
General information only; not personalised legal, tax or financial advice. Rules depend on the transaction and may change.