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service lines changed over time?
    You also need to assess the company’s reputation and the strength of its business relationships. Talk to existing customers, suppliers and vendors about their relationships with the business. Contact the Better Business Bureau, industry associations and licensing and credit-reporting agencies to make sure there are no complaints against the business. (For more questions to ask before purchasing an existing business, refer to the checklist starting on page 44.)
    If the business still looks promising after your preliminary analysis, your acquisition team should start examining the business’s potential returns and its asking price. Whatever method you use to determine the fair market price of the business, your assessment of the business’s value should take into account such issues as the business’s financial health, earnings history, growth potential, and intangible assets (for example, brand name and market position).
    Business Evaluation Checklist
     
    If you find a business that you would like to buy, you will need to consider a number of points before you decide whether to purchase it. Take a good, close look at the business and answer the following questions. They will help you determine whether the business is a sound investment.
    • Why does the current owner want to sell the business?
    • Does the business have potential for future growth, or will its sales decline?
    • If the business is in decline, can you save it and make it successful?
    • Is the business in sound financial condition? Have you seen audited year-end financial statements for the business? Have you reviewed the most recent statements? Have you reviewed the tax returns for the past five years?
    • Have you seen copies of all the business’s current contracts?
    • Is the business now, or has it ever been, under investigation by any governmental agency? If so, what is the status of any current investigation? What were the results of any past investigation?
    • Is the business currently involved in a lawsuit, or has it ever been involved in one? If so, what is the status or result?
    • Does the business have any debts or liens against it? If so, what are they for and in what amounts?
    • What percentage of the business’s accounts are past due? How much does the business write off each year for bad debts?
    • How many customers does the business serve on a regular basis?
    • Who makes up the market for this business? Where are your customers located? (Do they all come from your community or from across the state or are they spread across the globe?)
    • Does the amount of business vary from season to season?
    • Does any single customer account for a large portion of the sales volume? If so, would the business be able to survive without this customer? (The larger your customer base is, the more easily you will be able to survive the loss of any customers. If, on the other hand, you exist mainly to serve a single client, the loss of that client could finish your business.)
    • How does the business market its products or services? Does its competition use the same methods? If not, what methods does the competition use? How successful are they?
    • Does the business have exclusive rights to market any particular products or services? If so, how has it obtained this exclusivity? Do you have written proof that the current business owner can transfer this exclusivity to you?
    • Does the business hold patents for any of its products? Which ones? What percentage of gross sales do they represent? Would the sale of the business include the sale of any patents?
    • Are the business’ supplies, merchandise and other materials available from many suppliers, or are there only a handful who can meet your needs? If you lost the business’s current supplier, what impact would that loss have on your business? Would you be able to find substitute goods of the appropriate quality and price?
    • Are any of the