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Questions to Ask When Buying a Business: 50 Due Diligence Questions Organized by Category

The safest buyer in a private-company acquisition is usually not the smartest person in the room. It is the buyer who asks the question that forces a real answer before the LOI turns optimism into legal fees. That matters in Indiana, where the deals worth chasing are rarely so scarce that you have to suspend discipline to win one.

The SBA Office of Advocacy’s 2025 Indiana profile counts 591,671 small businesses statewide and 1.2 million small-business employees. Census QuickFacts shows 24,248 employer establishments in Marion County and 10,446 in Hamilton County in 2023. That is real operating depth. Fort Wayne, Indianapolis, Elkhart, Hendricks County, and the rest of the corridor give buyers options. If one seller cannot answer serious questions cleanly, another target usually can.

In the $1 million to $10 million lane where Midwest Business Brokers usually works, most buyers are still using some mix of SBA debt, conventional debt, seller paper, or private capital. That means bad answers do not just hurt confidence. They hurt financeability. If you are still early and need the broader process first, start with the first-time buyer roadmap. If you are still hunting inventory, Browse Businesses for Sale in Indiana and keep the Indiana businesses for sale guide beside you. The questions below are for the stage where a live target starts sounding plausible and you need to decide whether it deserves your time, money, and exclusivity.

How to Use This Question List Without Blowing Up the First Meeting

Not every question belongs in the first 20 minutes. A disciplined buyer stages the list in three passes. The first pass is the screening call: earnings quality, owner dependence, customer concentration, financing fit, and obvious legal problems. The second pass is the management meeting: operations, people, customers, systems, and transition reality. The third pass is the data-room version: document-backed follow-up questions after the seller has already represented the business a certain way.

That sequencing matters because seller psychology matters. If you ask for environmental reports, payroll census, and lease amendments before you know whether the gross margin is even real, you look noisy. If you ask only polite high-level questions and save the hard ones for after the LOI, you are volunteering to negotiate from a weaker position later.

  • Use the first eight to ten questions to decide whether the deal deserves another meeting.
  • Use the category tables to turn management answers into a document request list.
  • Write down what the seller says word for word when the answer touches margin, concentration, permits, or transition. Those are the areas that get repriced later.
  • Ask follow-up questions when the seller answers too quickly. Clean businesses usually have specific answers. Weak businesses usually have smooth answers.

The point is not to sound aggressive. The point is to sound financeable. If you want the seller-side version of the exact same battlefield once you are under LOI, keep the 45-day diligence checklist nearby. Use this list to decide whether you should even get that far.

Financial Questions That Test Whether the Earnings Are Real

Most bad acquisitions do not begin with fake revenue. They begin with earnings that were never tested hard enough. The financial questions below are not accounting trivia. They tell you whether the cash flow survives a quality of earnings review, a lender memo, and a purchase agreement schedule. If the seller says the numbers are clean, ask the questions that would prove it. If you want the deeper buyer lens on what gets challenged in diligence, read our piece on the quality of earnings report.

Question What the answer reveals Red flag to watch for
1. Can I see 36 months of monthly P&Ls and balance sheets, not just tax returns? Monthly statements show seasonality, margin drift, payroll swings, and working-capital behavior. Tax returns tell you what was filed. They do not show whether the operating story is stable enough to underwrite month by month. The seller has annual tax returns but no reliable monthly package, or the monthlys do not tie to filed numbers. That usually means you are buying into a reconstruction project.
2. What owner add-backs are built into your number, and what supports each one? This tests whether adjusted earnings are documented or just narrated. Legitimate add-backs should tie to invoices, payroll records, lease support, or bank statements, not memory. The seller says the add-backs are “obvious” but cannot show invoices, payroll detail, or a consistent policy. Unsupported adjustments are often the first haircut in diligence.
3. How much maintenance capex did the business actually need in each of the last three years? Buyers do not get paid on EBITDA alone. They get paid on EBITDA after the business stays operational. This answer tells you whether the seller has been funding the real upkeep the business requires. Capex has been unusually low while equipment age, downtime, or repair frequency is clearly rising. That means headline earnings may be borrowing from future cash flow.
4. What changed in gross margin over the last 24 months, and why? Stable gross margin usually means pricing discipline and cost control. Volatile gross margin can point to weak job costing, discounting pressure, inventory mistakes, or one-time mix benefits. The seller explains margin movement with broad talk about “the market” but cannot tie it to pricing, vendor changes, mix shift, or operating improvement.
5. How do receivables age, and how often do you write off bad debt? This exposes whether reported revenue converts to cash. Aging quality also tells you whether customer relationships are strong enough to keep collections normal after closing. Receivables over 60 or 90 days are higher than the seller implied, or write-offs are described as rare but never tracked formally.
6. What inventory is obsolete, slow moving, or carried at full value but hard to sell? Inventory quality changes both enterprise value and working capital. A balance sheet can look fine while carrying dead items that no buyer should pay dollar-for-dollar. The seller talks about inventory at cost but has no aging, no reserve logic, and no clean distinction between usable stock and dead stock.
7. What debt, equipment leases, or UCC liens have to be cleared at closing? This question tells you how much of the headline price is actually encumbered and whether any assets you think you are buying already belong to a lender. The seller is vague about payoff amounts, lien releases, or whether related-party debt exists outside the primary operating bank.
8. What does earnings look like after paying a real market salary to replace you properly? This is where a buyer separates a company from an owner-created income stream. The answer tells you whether the business still produces attractive cash flow after professionalizing the operator role. The seller assumes you will do the job for free, indefinitely, or with no learning curve. That is not normalization. That is wishful pricing.

Real Estate, Equipment, and Technology Questions That Change Price After the Site Visit

Many deals look fine in a teaser and get weaker the moment the buyer walks the site, reads the lease, and asks who really controls the systems. Real estate, equipment, and technology are where sellers often discover that “it works now” is not the same as “it transfers cleanly.” Buyers who ask these questions before exclusivity save themselves from paying for surprises twice.

Question What the answer reveals Red flag to watch for
41. Does the lease assign cleanly, and how much runway is actually left? A business with good earnings and a weak lease can still be a weak deal. Lease assignability, renewal options, and landlord behavior all matter. The lease has short remaining term, unclear renewal rights, or landlord consent risk that the seller has never stress-tested with the owner of the property.
42. If the seller owns the real estate, what is true market rent for the business? Related-party rent often flatters earnings. Buyers need to know the real occupancy cost the operating company will face after closing. The seller insists current rent is “close enough” without any real basis, even though local industrial or commercial rates clearly suggest otherwise.
43. What equipment is mission critical, how old is it, and what fails most often? This turns book-value equipment into an operating reality. Buyers care less about depreciation schedules than about uptime, maintenance history, and replacement pressure. The seller has an asset list but no reliable maintenance logs, no age schedule, and no clear answer on which machine or vehicle would hurt the business most if lost.
44. What software, domains, email accounts, and admin rights are owned personally versus by the business? Transferable control over systems is part of the asset. If the owner personally controls critical systems, the company is less transferable than it appears. The business runs through personal logins, personal email, or a founder-controlled domain registrar that no one else can access confidently.
45. How are backups, MFA, cybersecurity, and wire controls handled? Even in smaller deals, buyers now want to know whether the company can protect cash, data, and continuity. This is not a Fortune 500 question anymore. The seller relies on an outside IT person informally, uses shared passwords, has no tested backups, or cannot say who approves financial changes and payment instructions.
46. Are there equipment loans, landlord defaults, CAM disputes, code issues, or deferred site problems not obvious in the marketing package? This catches the ugly practical issues that rarely make it into the CIM but always find their way into closing adjustments or lender conditions. The seller minimizes recurring site or occupancy issues as “normal” even though they create real post-close cash or consent risk.

Market and Competitive Questions That Explain Future Margin Pressure

A buyer is not paying for the seller’s last three years. A buyer is paying for the next three. That is why market questions belong in diligence, not just in strategy memos. Indiana’s small-business profile shows scale where it matters: 70,480 transportation and warehousing businesses, 66,189 construction businesses, 64,483 professional and technical services businesses, and 14,090 manufacturing businesses. Those numbers are a reminder that even strong local businesses still compete inside active markets. If you do not know why this company wins, you cannot know whether the current margin will survive you.

Question What the answer reveals Red flag to watch for
47. Why did revenue and margins move the way they did relative to the local market? This helps separate company-specific performance from general economic tailwinds. A good business knows where it outperformed and where it simply rode the market. The seller attributes all growth to skill and all weakness to the economy, with no serious competitor, customer, or pricing analysis behind either claim.
48. What does competitive pressure look like in your actual geography? Fort Wayne industrial buyers, Indianapolis route buyers, and Elkhart manufacturers do not face identical competitive sets. Geography changes labor, pricing, and customer alternatives. The seller talks about competition in broad national terms but cannot explain what is happening in the counties and customer segments that actually matter.
49. Which vendors have real pricing power over you? Vendor concentration can compress future gross margin just as badly as customer concentration can compress revenue quality. Buyers need both sides of that equation. The company depends on one or two suppliers with no practical substitute, and the seller has no real pass-through discipline when costs move.
50. Why do customers stay besides habit and your personal relationship? This tells you whether the company has structural reasons to win: contracts, route density, switching costs, technical capability, response time, certifications, or brand strength. The seller’s answer comes down to “people like us” or “we have been around a long time,” with no specific reason that would travel well after a change in ownership.
51. Where does the obvious upside sit, and why has it not been captured already? Real upside is attractive. Imaginary upside is how buyers rationalize paying too much. This question tests whether the gap is about capital, attention, talent, or wishful thinking. The seller pitches multiple easy growth levers that somehow none of the current managers ever acted on, even though the business supposedly had the resources to do so.

Transition Questions That Determine Whether Day One After Closing Will Be Stable

Most buyers talk about transition too late. They negotiate price, financeability, and diligence, then discover the real risk sits in the first 90 days after closing. The business you acquire on paper is not the same as the business you inherit on Monday morning. These questions tell you whether continuity is real or just assumed.

Question What the answer reveals Red flag to watch for
52. How long will you stay after closing, and what exactly will you do during that time? A transition promise only has value when it is specific. The role, hours, responsibilities, customer introductions, and handoff milestones should be concrete. The seller promises to “help however needed” but cannot define scope, availability, or what success looks like by the end of the transition period.
53. When do employees, customers, and vendors get told, and who delivers that message? Communication timing affects retention and continuity. A clean answer shows the seller understands confidentiality and the difference between rumor control and transition planning. There is no communication plan, or the seller assumes everyone can be told after the fact without any risk of churn, disruption, or resentment.
54. Which customers, managers, or vendors could react badly to a sale? Every decent owner knows where the emotional risk sits. The answer helps you build retention and outreach plans before surprises become emergencies. The seller insists no one will care, which usually means the seller has not thought seriously about the people most likely to make the handoff messy.
55. What is the 90-day handoff plan for bank accounts, signers, insurance, software, and key approvals? This tests practical readiness. Buyers do not get paid for closing. They get paid for operating successfully right after closing. The seller has no real day-one checklist and assumes the lawyers or the buyer will piece the transition together after funds are wired.
56. If you were sitting in my chair, what answer in this meeting would make you rework the price or structure? This is a blunt credibility test. Good sellers usually know exactly which risks would concern a rational buyer because they have lived with them. The seller says there are no meaningful issues left, even after a meeting that clearly surfaced concentration, owner dependence, lease, tax, or labor concerns.

What to Do With the Answers Before You Write the LOI

A strong buyer does not collect these answers and then rely on memory. He turns them into underwriting decisions. If the seller’s story survives the questions above, the next step is not excitement. It is disciplined translation: price, structure, diligence scope, financing plan, and transition conditions all need to move before exclusivity starts working against you.

  • Rebuild normalized earnings using only the adjustments you would be willing to defend to a lender, a QoE provider, and your own future self.
  • Rework the capital stack using current rates and real closing liquidity, not the best-case terms you hope to win later.
  • Convert every vague answer into a document request. If the seller says customer retention is excellent, ask for the retention file. If the seller says the lease is fine, ask for every amendment.
  • Separate issues into price problems, structure problems, and walk-away problems. Those are not the same thing.
  • Build working-capital and transition assumptions into the LOI early. If you need the seller-side framing, read the article on the working capital peg before you leave that section loose.
  • Once you go exclusive, pair this question list with the 45-day diligence checklist so your questions become a staged request list instead of a pile of notes.

The most expensive buyer mistake is not asking too many questions. It is asking them too late. If you already have a live Indiana target and want the economics, structure, and diligence posture pressure-tested before you commit further, Schedule Your Confidential Consultation. If you are still narrowing the field, compare the opportunity against our valuation multiples by industry reference and keep sourcing discipline high enough that you can still walk away when the answers stop holding up.

Once a buyer has a diligence checklist, the next practical step is comparing real opportunities. Midwest’s businesses for sale in Indiana hub gives buyers a cleaner starting point for matching questions to actual listings.

Frequently Asked Questions

How many questions should I ask before signing an LOI to buy a business?

You do not need all 56 before an LOI, but you do need enough to test earnings quality, concentration, owner dependence, lease risk, financing fit, and obvious legal or tax problems. In practice, eight to 12 good screening questions before exclusivity are worth more than 40 rushed questions after you are emotionally committed.

What are the most important questions to ask when buying a small business?

The highest-value questions are the ones that change price or financeability fast: monthly financials, documented add-backs, real owner replacement cost, customer concentration, working-capital needs, lease assignability, and who actually runs the business when the owner is gone. Those answers tell you whether you are buying a company or buying a founder’s lifestyle.

Which seller answers usually lead to a price cut?

The repeat offenders are unsupported add-backs, vague backlog, one customer carrying too much gross profit, short or non-assignable leases, deferred capex, family payroll that does not survive closing, and any transition plan built on “I will help if needed.” Those are the answers that turn headline value into a lower purchase price, a seller note, or a larger escrow.

Should I ask these questions before or after I sign an NDA?

Ask the high-level screening version before or immediately after the NDA, then ask the document-backed version before the LOI hardens. You do not need payroll files and tax-clearance letters on the first call, but you absolutely need enough detail to know whether the seller’s narrative is even worth formal diligence.

When should I bring in an M&A advisor, lender, or deal counsel on the buy side?

Bring the lender in before you anchor to price, and bring legal and deal support in before exclusivity begins if the transaction is large enough to hurt. In the $1 million to $10 million band, professional help is usually cheaper than one bad structure decision, one bad working-capital assumption, or one seller answer you believed without testing.


Customer and Revenue Questions That Expose Concentration Risk Before the LOI

Revenue quality is rarely about top-line size alone. Buyers pay for durable cash flow, not for one strong year dressed up as a trend. In Indiana, this matters even more in manufacturing, logistics, construction, home services, and healthcare-adjacent companies because the buyer pool is usually sharp enough to ask whether the customer relationship belongs to the company or to one owner, one salesperson, or one plant manager.

Question What the answer reveals Red flag to watch for
15. Who are the top 10 customers, and what percentage of revenue and gross profit do they represent? Concentration only matters in context. A 25% customer with a long contract and solid margin can be manageable. A 25% customer on handshake terms is something else entirely. The seller will give revenue concentration but not gross-profit concentration, or will only disclose a top one or top three view that hides the real dependency.
16. Are those customer relationships controlled by contracts, purchase orders, or habit? This tells you whether revenue is contractual, repeat, or simply familiar. Buyers consistently overpay when they mistake habit for transferability. The seller calls the customers loyal but cannot point to written terms, renewal history, or pricing mechanisms that survive a change in ownership.
17. How much revenue is recurring versus project-based versus one-time? Recurring revenue commands better financing and better multiples because it reduces volatility. Project work can still be attractive, but it deserves different underwriting. The seller labels almost everything recurring because customers return eventually, even though there are no true contracts, subscriptions, or maintenance agreements.
18. What did customer churn or retention look like over the last 24 months? Retention tells you whether the business has structural stickiness or just active selling energy. It also tells you how painful an ownership transition may be. The seller can describe wins and losses anecdotally but has never tracked churn, renewal rate, or account attrition formally.
19. What discounts, rebates, chargebacks, warranties, or credits hit those accounts? This shows whether gross profit is cleaner or weaker than revenue growth suggests. Buyers often miss this when they ask only about booked sales. The seller discusses revenue proudly but minimizes concession history, warranty claims, or recurring customer credits that quietly compress margin.
20. How much of what you call backlog is signed work versus forecast? This is critical in construction, distribution, manufacturing, and project services. Signed backlog supports value. Forecast does not deserve the same confidence. The seller uses backlog and pipeline interchangeably, or reports expected orders as if they were already awarded and priced.
21. Which relationships belong to the company, and which ones still belong to you personally? This question goes straight to transfer risk. A customer base can look diversified and still be dangerously founder-dependent. The owner says customers buy from the brand, then later admits the top accounts still call his cell phone for pricing, service recovery, or exceptions.

Operational Questions That Tell You Whether the Business Runs Without the Owner

Operations is where many sellers confuse familiarity with durability. A business can feel smooth to the founder and still be impossible for a new owner to run cleanly. Buyers in Fort Wayne industrial deals, Indianapolis service companies, and Elkhart manufacturing files all run into the same issue: the operating system lives in one person’s head until diligence forces the truth out.

Question What the answer reveals Red flag to watch for
22. Who handles scheduling, estimating, purchasing, and collections when you are out for a week? This tells you whether the company has genuine operating redundancy or whether the seller is the control tower holding every key process together. The answer is some version of “people can cover for me” but no one clearly owns the function, authority, or decision rights in the seller’s absence.
23. What KPIs do you review every week, and can I see the last 12 months? Operationally mature businesses measure the things that actually move value: gross margin, backlog quality, route density, utilization, labor efficiency, on-time performance, or service agreement retention. The seller talks about operating discipline but has no dashboard history, no weekly cadence, and no consistent way to measure execution.
24. What key workflows are documented, and what still depends on tribal knowledge? Documented workflows reduce transition risk, training burden, and employee turnover pain. Tribal knowledge increases post-close fragility. The seller says the team “just knows how to do it” and treats process documentation like an administrative luxury instead of an asset.
25. Where are the biggest operational bottlenecks or capacity constraints right now? Good sellers know exactly where the business is constrained because they live it every day. Their answer also tells you where immediate post-close capital may be required. The seller insists capacity is fine while simultaneously explaining late deliveries, backlog slippage, technician shortages, or overtime spikes.
26. What systems run dispatch, ERP, CRM, accounting, and reporting, and who administers them? Systems discipline matters because the business has to operate on Monday after closing. This answer also tells you whether data integrity is strong enough for lender and buyer trust. The owner is the only admin, major systems are tied to personal logins, or key reports come from manual spreadsheets no one else can maintain.
27. What maintenance, repair, or process-improvement work have you postponed? This surfaces whether current earnings benefited from delay rather than real efficiency. Deferred maintenance is one of the oldest ways private-company EBITDA gets flattered. The seller says nothing major is deferred, then later points out several machines, vehicles, or facility items that “will need attention soon.”

Employee and Management Questions That Separate a Company From a Job

In Indiana’s lower middle market, buyers are usually paying for the people who still show up after the owner leaves. That is true in manufacturing, field services, healthcare support, logistics, and white-collar services. The seller may think the buyer is paying for the trucks, the equipment, or the logo. More often, the buyer is paying for the second layer of management and the stability of the labor force.

Question What the answer reveals Red flag to watch for
28. Who are the key managers, and what happens if one of them leaves? This shows whether management depth is real or overstated. It also tells you where retention agreements or compensation changes may be necessary after closing. The seller says the team is strong but every important decision still routes through one operations leader, one controller, or one plant manager with no backup.
29. Which employees have confidentiality, non-solicit, or non-compete agreements? Buyers need to know how portable the workforce and customer book really are. This matters even more when sales or technical employees hold the real relationship capital. No one critical has signed anything meaningful, or the seller assumes loyalty alone will protect the business after ownership changes.
30. How are your technicians, salespeople, project managers, or operators paid? Compensation structure tells you how scalable the labor model is and whether margin depends on under-market pay, owner discretion, or side promises. The payroll model is full of informal bonuses, off-cycle adjustments, or role confusion that nobody can explain cleanly in writing.
31. What has employee turnover looked like by role over the last 24 months? Turnover by role tells you where the labor pressure sits. A business can have low total turnover and still be hemorrhaging the exact employees you need most. The seller only talks about overall culture and cannot break turnover down by technicians, drivers, estimators, supervisors, or office staff.
32. Are any family members on payroll, and would they stay after closing? Family payroll affects normalized earnings, role clarity, and transition planning. Some family members are essential operators. Others are owner perks with job titles. The seller treats multiple family roles as permanent even though those people would leave at closing or have responsibilities that were never market priced.
33. What licenses, certifications, or approvals are tied to one person? This goes straight to transferability. In trades, healthcare, transportation, and regulated services, one person’s credential can be the difference between continuity and disruption. The business depends on one licensed individual who plans to retire, or the seller assumes the buyer can solve the licensing issue after the deal closes.

Legal, Tax, and Regulatory Questions Indiana Buyers Cannot Leave to Counsel Alone

Lawyers matter here, but a buyer who waits for counsel to ask all the legal questions is already late. Indiana has a few issues that deserve attention early. Beginning Jan. 1, 2024, Indiana successor-liability rules can make a buyer liable for certain past-due sales, use, county innkeeper’s, and food and beverage taxes when more than 50% of a business’s tangible personal property changes hands. The Indiana Department of Revenue requires a Notice of Transfer in Bulk at least 45 days before the transfer, can issue a liability summary or tax-clearance letter, mails that clearance within 20 days when the file is clean, and says the letter stays valid for 60 days. Indiana also states that a retail merchant’s certificate does not transfer. Buyers who find this out two weeks before closing usually learn the schedule was never realistic.

Question What the answer reveals Red flag to watch for
34. Is this naturally an asset sale or a stock sale, and what breaks if we choose the wrong structure? This tells you where the transfer risk actually lives: contracts, tax exposure, permits, licenses, real estate, or legacy liabilities. Good sellers know which structure fits the file. The seller has a structure preference but no clear explanation of assignability, tax impact, or why the business would or would not transfer cleanly either way.
35. Are all Indiana entities in good standing, and do they match how the business actually operates? Many private companies run operations through a maze of operating entities, real-estate entities, and legacy entities. You need to know which one owns what and signs what. The seller describes one business, but the contracts, payroll, tax filings, and property ownership sit in different places no one has mapped cleanly.
36. Are there any outstanding sales, use, food and beverage, or county innkeeper tax issues? This is not just a tax question. In Indiana it is a closing and withholding question because buyers can inherit exposure in the wrong asset transfer. The seller says taxes are current but cannot confirm filing status, prior notices, payment plans, or whether all locations are properly registered.
37. Will this transaction trigger Indiana’s Notice of Transfer in Bulk? This question tests whether the buyer and seller are operating on a real closing calendar. It also tells you whether part of the purchase price may need to be held back for tax protection. No one has thought about the 45-day notice timing even though the deal is obviously an asset-heavy transfer and closing dates are already being discussed.
38. Is there any current or threatened litigation, wage-and-hour issue, OSHA issue, or employee claim? This surfaces hidden liabilities and tells you how candid the seller is when the answer is uncomfortable. Good sellers may have issues. Weak sellers hide them. The seller describes claims as minor or “already handled” but cannot provide dates, counsel, reserves, or supporting correspondence.
39. What permits, local approvals, health licenses, or PLA registrations are essential to operate? Many Indiana businesses are more permit-sensitive than owners admit. Restaurants, childcare, healthcare, trades, and regulated operators all live here. The seller cannot clearly identify which permits are entity-specific, location-specific, or person-specific, which usually means transfer risk is still unscoped.
40. What environmental history, waste handling, underground tanks, or contamination issues exist? This matters in manufacturing, fleet, automotive, fuel, dry-cleaning, and industrial sites. A lender or buyer consultant will ask. You should ask first. The seller answers with “nothing that I know of” on a property that obviously has industrial history, old tanks, or historical uses that deserve documentation.

If the answers to those eight questions still hold up, only then should you start comparing the deal against broader valuation multiples by industry. Multiples are a useful reference. They are not a substitute for proving the earnings base first.

Cash Flow and Financing Questions That Show What a Bank Will Actually Lend

As of April 13, 2026, the Federal Reserve’s April 10, 2026 H.15 release showed bank prime at 6.75%. SBA’s current 7(a) page still caps many variable-rate loans above $350,000 at base rate plus 3.0%, which puts the ceiling around 9.75%. SBA’s August 2023 program changes also still leave complete changes of ownership above $500,000 with a 10% equity-injection requirement. On a $4.2 million acquisition with 10% buyer equity, 15% seller paper, and a $3.15 million senior SBA note, annual senior debt service at 9.75% over 10 years is about $494,312. A lender targeting 1.25x coverage wants roughly $617,890 of dependable post-adjustment cash flow. That is why these are not optional questions. If you need the full lender-side map, use the SBA 7(a) acquisition loan guide.

Question What the answer reveals Red flag to watch for
9. What normalized cash flow remains after a real market salary for my replacement? This is the lender’s version of owner dependence. It tells you whether the business can carry debt after the founder role is replaced with actual payroll cost. The seller insists the replacement cost is low because “a buyer will handle that himself.” Lenders do not underwrite free management.
10. How does working capital swing by month, not just at year end? Seasonal businesses and inventory-heavy companies can look fine on one date and cash-hungry on another. Monthly working-capital behavior tells you how much cash the business really needs to operate. The seller only shows one balance-sheet date, usually year end, and avoids monthly AR, AP, inventory, or deferred-revenue detail.
11. What portion of revenue is prepaid, deposit-based, or highly seasonal? This tells you whether the cash conversion cycle is better or worse than the income statement suggests. It also affects how you think about closing-date working capital. The seller markets the business as recurring or seasonal in a favorable direction but cannot show the monthly cash pattern that proves it.
12. If I finance this deal under current rates, what debt-service coverage does the business support? A disciplined seller should understand buyer financeability because financeability sets the ceiling on price in much of Indiana’s lower middle market. The seller talks multiples and price but has never modeled a capital stack at current rates. That often means the asking price is not lender-tested.
13. How much seller financing are you willing to carry, and on what terms? Seller paper can bridge a reasonable valuation gap, improve lender comfort, and keep the seller aligned during transition. The structure matters as much as the amount. The seller says he is open to a note but has not thought about standby, amortization, subordination, personal guaranty, or offset rights.
14. How much cash does the business need on day one after closing to keep operating normally? This reveals whether the seller understands post-close liquidity or is assuming the buyer will discover the real working-capital need the hard way. The answer is basically “whatever is left in the account” or “you should be fine.” That is how buyers overpay and then undercapitalize themselves.

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