55 Questions I Ask Before I Buy a Business

When evaluating a new acquisition opportunity at Waterglass, I follow a simple process: asking lots of questions.

First, when I check out a listing like the one in the video below, I try to ask myself high-level questions about the business, such as...

• What is the opportunity with this business?
• For how long has it already been neglected, and how quickly can it be turned around?
• Do I have the skills to make this happen?

Once I decide to dig deeper into a potential early stage acquisition opportunity, I go through a list of questions that I have collected over time, and today I want to share it with you.

Keep in mind that the questions below are specifically designed for small, early stage acquisitions. Also, they are not exhaustive. I usually add or rephrase 1-2 questions every other week to get a clearer picture of the opportunity in front of me.

In my experience, asking these questions during a 30-45 minute call is often more important than listening to the answers. It's really about reading between the lines when you are in a conversation with the seller.

A quick guide on how to read the questions below:

• They are designed for a quick temperature check to help decide whether to proceed further with this acquisition opportunity or not.
• They are split into two categories: Questions I ask the seller and Questions I ask myself.
• Not all 55 questions are required to get a first impression, but questions in bold I try to get answered immediately.
• Keep in mind that every topic below should be explored in depth when both parties decide to enter the due diligence process.

PS: Bookmark this website to come back later

Questions I ask the seller

Founder(s)

• Why did you choose to build this product?
• Why are you selling?
• How long have you been working on this?
• Who else worked on this? Internal/external?
• According to you, how dependent is the business on you?
• Which assets are included in the price? Which aren't?
• If you would not sell now, what would be the most important topic to work on next?
• What is the price, and why?

Business Model & Financials

• Is the business based on one-off or recurring revenues? Are there any other revenue streams, such as services?
• What is the current MRR?
• What is the TTM (trailing twelve months) revenue?
• What is the ratio between monthly and annual subscriptions?
• Have monthly subscriptions been renewed yet?
• What is the churn rate?
• What are the COGS?
• What are the CAC and LTV?
• Can you send me a Stripe export?

Customers

• How many customers does the business have?
• How were they acquired?
• Where are the customers based?
• What acquisition measures have been taken to date? What worked? What didn't?
• Can I speak to 2+ of your customers?
• How many customers are in the pipeline? What is their closing probability?
• Did customers churn? Why did they churn?
• Did your customers sign a contract? If so, can I see it?

Product

• Can we do a demo?
• What are the top 3 customer support requests?
• Who are the competitors? How does your business differentiate?
• What KPIs are you optimizing for? How do you track them?
• Can you send me a website analytics export?

Technology

• What is the tech stack? Why did you decide for this stack?
• Can you send me a software architecture diagram?
• Where is it hosted?
• What is your test coverage?
• What external dependencies exist?
• Can we go through the code in a call?
• Did you check for legal compliance, especially around data privacy and IP?

Questions I ask myself

General

• How dependent is the business on the founder(s)?
• Do we have an understanding of the industry?
• Who can we talk to who is familiar with this industry?
• Is the SOM (serviceable obtainable market) large enough?
• How fierce is coompetition in this space?
• How could the business be expaned within 1-3 months?

Portfolio

• Are there synergies with existing portfolio businesses?
• Are there synergies with existing portfolio customers?

Growth

• Where is the lowest hanging fruit for immediate growth: distribution, business model, user experience, technology?
  (more infos in this issue)
• What customer acquisition techniques are required to scale the business? DO we have them?
• Does the business scale with outbound sales?
• How many backlinks point to the business's website, and what are their sources?

Technology & Product

• Does the product use generative AI? If not, can it be enhanced or replaced by it?
• Does the tech stack fit our skills?
• Is the code well maintained?
• What is the site speed?
• Who was taking care of product management before, if anyone?
• How can the product be further differentiated from competition?

P.S. I also help other acquirers make the right decision when buying a business to avoid expensive mistakes. Find out how to get support for your due diligence process below: