What should I ask about a sewing school’s fabric supplier credit terms?

Start with a list of every fabric and notions supplier, with the balance owing, the payment terms and the history of paying on time. Compare it with the unpaid bills in the books. If the school routinely pays late, ask whether suppliers have complained, tightened terms or demanded cash on delivery.

Next, find out who stands behind the credit. Some accounts rest on the owner’s personal guarantee or personal credit record, which will not pass to you. Ask each supplier, with the seller’s consent, whether the account will continue, and what they would want from a new owner. Expect to be asked for your own references and financial information, and ask the seller to make the introductions so the conversation starts warmly.

Think about how the credit affects working capital. If supplier terms carry the school through slow months, losing them means you need more cash or a line of credit. Run the numbers on a version of the business without the favourable terms, and have your accountant review how outstanding balances will be settled at closing. Finally, ask whether any supplier holds a security interest against the stock, since your lawyer will want that cleared.

Key takeaways

• Get a supplier list showing balances, terms and payment history.
• Ask whether credit rests on the owner’s personal guarantee or transfers with the business.
• Model your cash needs if favourable terms disappear after the sale, and keep a cushion for early months.