- How long have they been in business? If it's 3 or more years, full-time, then that implies there is a demand for their product (goods or service).
- What do the books look like? Typically, someone asking this question hasn't done the books and may be years behind. Ask some key balance sheet questions: how do payables compare to receivables? How old (days) are payables? If their payables are growing, that means they're borrowing money from their vendors -- a bad sign.
- Do they have a marketing budget? If they have no money to spend on growing the business, that is a tough situation to be in.
- Do they still have the passion? Ask them where they want to be in 3-5-7 years. If they get excited about that prospect, they still have the fire. If they start talking about some OTHER project, then, hmmm, maybe not so much.
Once you take them through these questions and the resulting conversation, you'll get a feel for whether or not they should give it a try.
Finally, get them to a CPA as soon as possible. You need to get their books up to date and get a real financial picture.
All of this information will help you all come to a decision and will be a great foundation from which to build your services to help this business going forward.
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