One of the most important lessons I’ve learned as a buyer is that the purchase agreement is not just paperwork. It is the binding contract that defines everything about how an acquisition will unfold. Once it’s signed, the terms aren’t theoretical; they’re enforceable. That’s why the questions I ask before signing a purchase agreement are some of the most critical I’ve ever asked in business.
In this article, I’ll walk through the questions I personally insist on answering before I commit. These questions have saved me from bad deals, given me leverage in negotiations, and ensured smoother transitions once the ink dried.
Why Questions Matter More Than Assumptions
When I first started out, I made the mistake of assuming that if something wasn’t in the purchase agreement, it would “work itself out.” I believed that as long as I had a good relationship with the seller, we could figure out the details later. That assumption cost me time, money, and energy.
I’ve since learned that nothing is automatic. If a term is important, it needs to be asked about, clarified, and written into the agreement. Every unanswered question is a potential future conflict.
Question 1: What Exactly Is Included in the Sale?
The first question I always ask is deceptively simple: what exactly am I buying? Sellers sometimes assume certain assets aren’t part of the deal, while buyers assume they are. This disconnect can create chaos at closing.
I ask:
- Are vehicles included?
- Is inventory included, and at what value?
- What about intellectual property, trade names, or websites?
- Are customer lists and contracts part of the sale?
By clarifying this upfront, I avoid surprises where I pay for a business but discover key assets are excluded.
Question 2: How Will Working Capital Be Handled?
Working capital is one of the most overlooked elements in purchase agreements. Without enough cash, receivables, or inventory, a business can collapse the day after closing.
I always ask how working capital is being calculated and delivered. Will I receive a normalized level of receivables and payables? Will inventory be replenished to a standard level? If the answer isn’t clear, I negotiate terms that protect me.
Question 3: What Representations and Warranties Are Being Made?
Representations and warranties are promises the seller makes about the state of the business. They cover everything from financial accuracy to legal compliance. I always ask which reps and warranties the seller is willing to make and whether they’re broad enough to protect me.
For example, if the seller represents that all taxes are paid, I gain protection if the IRS later claims otherwise. If the seller refuses certain reps, that’s a red flag. I’d rather ask tough questions before signing than inherit problems later.
Question 4: How Are Liabilities Being Handled?
Liabilities can sink a deal if they aren’t clearly addressed. I ask:
- Am I assuming any debts?
- What about leases, loans, or vendor contracts?
- Are there pending lawsuits or claims I could inherit?
The purchase agreement must specify whether liabilities transfer or remain with the seller. Ambiguity here is unacceptable.
Question 5: What Is the Transition Plan?
Too many agreements gloss over transition, leaving buyers to figure it out after closing. I insist on asking:
- How long will the seller stay involved?
- What specific training will they provide?
- Will they introduce me to key customers and vendors?
- How available will they be after the first 30 days?
By locking these details into the agreement, I ensure continuity and avoid post-close abandonment.
Question 6: How Is the Purchase Price Structured?
I ask not just about the total price, but about the structure. Is there seller financing? Earnouts? Holdbacks? Are there contingencies tied to performance?
Structure often matters more than the headline number. A lower upfront payment with favorable terms can be safer than a higher price with all cash due at close.
Question 7: What Non-Compete Restrictions Will Apply?
I’ve seen deals where the seller walked away and immediately started a competing business down the street. That’s why I always ask about non-compete terms.
I clarify:
- How long will the non-compete last?
- What geographic area does it cover?
- Does it include similar industries or just direct competitors?
Without clear restrictions, I risk buying a customer base only to see it follow the seller to their new venture.
Question 8: What Happens If Financials Were Misrepresented?
Even with diligence, surprises happen. I always ask what protections I have if financials turn out to be inaccurate. Will there be indemnification? Will part of the purchase price be held in escrow to cover such risks?
This question ensures that if misrepresentation occurs, I’m not left holding the bag.
Question 9: Are Key Employees Staying?
A business’s value often rests on a handful of critical employees. I ask whether they’ve agreed to stay, whether retention bonuses are in place, and whether their roles are clearly defined.
I want assurance that talent won’t vanish the moment ownership changes. If the agreement doesn’t address this, I know I’m exposed.
Question 10: What Legal and Regulatory Issues Exist?
I always ask about licenses, permits, and regulatory compliance. Is the business fully compliant with local and federal requirements? Are there unresolved audits or investigations?
If these aren’t clarified, I risk buying a company with hidden legal exposure.
Why Asking These Questions Matters
Each of these questions serves one purpose: reducing ambiguity. The purchase agreement is my shield against surprises. By asking these questions before signing, I protect not only myself but also the employees and customers who will depend on me after the deal.
Lessons I’ve Learned the Hard Way
In one acquisition, I failed to clarify how working capital would be delivered. After closing, I discovered the seller had drained receivables, leaving me scrambling for cash. That mistake cost me months of stress.
In another, I underestimated the importance of a structured transition. The seller promised to help for “a few weeks,” but disappeared after five days. Had I asked better questions and locked in terms, that disaster could have been avoided.
My Checklist Before Signing
Before I sign any purchase agreement, I review this checklist of questions:
- What assets are included?
- How is working capital handled?
- What reps and warranties are made?
- Who assumes liabilities?
- What is the transition plan?
- How is the price structured?
- What non-compete terms exist?
- What happens if financials were misrepresented?
- Are key employees staying?
- Are there compliance or legal issues?
If any of these questions remain unanswered, I don’t sign.
Final Thoughts
Buying a business isn’t just about finding the right company, it’s about protecting yourself in the agreement that seals the deal. The purchase agreement defines the rules, rights, and obligations that will govern the transition. Asking the right questions before signing is the difference between a smooth acquisition and a costly nightmare.
I’ve made mistakes by failing to ask, but I’ve learned to never skip these conversations again. Today, I view these questions as non-negotiable. They’re the guardrails that protect me and the foundation that ensures long-term success.
I continue to share my insights on acquisitions, private equity, and real estate strategy at DrConnorRobertson.com, where I document the lessons I’ve learned deal by deal.