What to Consider When Starting or Buying a Business
A business book author answers some key questions a budding entrepreneur might have before making the leap to small-business owner.


Our recent article Four Big Mistakes to Avoid if You’re Buying a Business was based on my interview with Josh Tolley, nationally syndicated talk show host and author of the recently published Acquisitional Wealth. Tolley’s message: Given the high risk of failure a new business faces, purchasing an established, profitable enterprise is often far better.
His advice touched a nerve. Many readers reached out to me to say something to the effect of, “The idea of buying a business never occurred to me.”
Hanford, Calif., business attorney Ron P. Jones, who has been a friend of this column for many years, sent a list of important “due diligence questions that anyone thinking of buying a business must have answered. Why not run these by Tolley?” he suggested.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
I did, and he was happy to answer Ron’s questions. He began with this cautionary note: Be curious, but don’t let the naysayers frighten you away.
“When buying an established business or going out on your own,” he said, “it is important to be curious and get answers to tough questions. However, when you repeatedly hear, ‘Yes, but what about these things? Did you think about these issues?’ do not let yourself become frozen with fear. Yes, there are many valid objections, but too much doubt — and a failure to realize that every business will encounter problems — can wreck motivation and creativity. So, use your common sense when told, ‘No! This isn’t a good idea!’ Perhaps it is a good idea, so obtain advice from several, knowledgeable sources and be alert to those who might be jealous of your efforts to grow.”
Tolley shares more insights
Here are the other questions Tolley answered:
How much knowledge and experience do I need in order to qualify for a Small Business Administration (SBA) loan to buy or start a business?
Tolley: You do not have to know everything. If you apply for an SBA loan, they want some relatable experience, but if you are buying a plumbing company, you don’t have to be a plumber. You do need some experience in management, with the trades, something relevant where the SBA will feel comfortable issuing a loan.
Also, this would be satisfied by elevating someone currently employed by that business to management so the SBA sees a person with experience in charge of the operational side of the business.
Should I be concerned about existing competition or new competitors coming into town?
Tolley: Absolutely! These questions are an important part of the vetting process where you are examining the business and its possible liabilities, including new competitors.
A public records search on the location is critical. For example, if you buy a restaurant, is your city looking into ripping up the road to lay new water and sewer pipes, which would prevent access and could destroy your business?
Is a labor union involved? Do they have any say in an acquisition? Is there a franchise agreement — that the seller hasn’t looked at for years — where a corporation requires it to be offered it to them first?
This is why business buyers and sellers never should do this on their own!
How do I find out where to order supplies, parts, inventory and like items and whether the costs vary over time or based on the time of year? Is there someone who can help ensure I’m not taken advantage of by vendors?
Tolley: If done correctly in the due diligence process, not only will you get that information from the sellers, but they should remain with the business for six to twelve months for that very purpose. When a finance company puts up the funds, typically they require sellers to stay for at least six months.
What financials should I review when buying a business? Should I see audited reports, or would the seller’s “chicken scratches” be enough?
Tolley: There are several types of financials that should be reviewed. Some are created by the business owner, also known as chicken scratches, as well as:
- Professionally compiled financials
- Financials adjusted from the seller’s perspective (add-backs, credits, debits) to get a more accurate picture
- Analyses of price, value and worth
Too often, buyers focus on the price of an acquisition, rather than the business’ value or worth.
This is where the concept of goodwill enters into the equation, which can be manipulated to distort the selling price. Price, value and worth are so different that a business that is losing money on paper and priced at next to nothing could be worth a small fortune to the right buyer, especially when its particular inventory has great value in itself.
A business broker can help negotiate a much lower sale price if they are aware of how a buyer could use this inventory.
Combating social media insta-experts
Tolley is deeply concerned about “insta-experts” who appear on social media and appeal to people who are desperate to get into business. Some “sell often plain worthless guides and business plans — for thousands of dollars — which lead to horrible financial carnage and families on the rocks.”
To combat this, his organization is holding eight-hour, free seminars around the country, where participants can learn how mergers and acquisitions work and what potential business buyers need to know before investing in a business. For more information, visit joshtolley.com or acquisitionalwealth.com.
If his seminars come to my town, I’ll be in the first row.
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
Related Content
- What Not to Do if You Join Your Family Business
- Thinking of Starting a Business? Tips for Avoiding Failure
- Selling Your Business? Beware of Potential Blind Spots
- Is Someone Sabotaging Your Company? Is It You?
- How to Lose Your Shirt Investing in a Restaurant
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
-
Don't Have an Estate Plan? Six Things That Could Go Very Wrong
Bad things can happen when you're unprepared, such as big-time taxes and family turmoil. Generational planning can help protect the people you love. Here's some expert advice to help you out.
-
A Financial Planner's Tips for Teaching Kids About Wealth Without Creating Entitlement
If your kids are likely to inherit and you're worried about how they'll manage, start talking about money and teaching common-sense habits as soon as you can.
-
The $1 Million Retirement Question: Are You Being Tax-Smart About Your Pension?
A financial planner raises some key considerations for navigating retirement with a pension and recommends four strategies.
-
The Costly Mistake You Might Be Making With Your First 401(k)
Most people start contributing to their retirement savings later in life. That could be a big-time mistake, literally costing you thousands of dollars.
-
An Estate Planning Attorney's Guide to the Importance of POAs
Regularly updating your financial and health care power of attorney documents ensures they reflect your current intentions and circumstances. It's also important to clearly communicate your wishes to your chosen agents.
-
Divorce and Your Home: An Expert's Guide to Avoiding a Tax Bomb
Your home is probably your biggest asset, so if you're getting a divorce, the stakes are high. Keep it? Sell it? You need to have a good plan in place for how to handle it.
-
Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing Enforcement
Significant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.
-
What if You Could Increase Your Retirement Income by 50% to 75%? Here's How
Combining IRA investments, lifetime income annuities and a HECM into one plan could significantly increase your retirement income and liquid savings compared to traditional planning.