Meeting the Employees After a Sale

Meeting the Employees After a SaleWhile confidentiality is the name of the game before a sale, openness and transparency are the watchwords once a sale is finalized. In this article we’re going to speak about what buyers need to accomplish in their first meeting with team members.

Meet in Person

Do not call employees over the weekend to “prepare” them for a Monday meeting. This will start a game of telephone that may end up with no one showing up on Monday. Make sure that you meet in person so that these team members can get to know you in person. 

Bring Food

Food makes so many events in our lives better and more memorable. A change of business ownership is certainly an event worthy of food. Find out from the seller what some popular food items have been in the past or what company traditions are regarding food. 

Explain the Continuity

Sometimes sellers arrange for the sale to be a complete exit with no transition, but that’s pretty rare. Usually the old owner is around the business in one form or another for at least 90 days. 

This meeting offers an opportunity for a feel-good “same team” moment in which the former owner mentions:

  • his/her ongoing availability (when is the last day of transition, if relevant)
  • positive traits of the new owner (underline that this was just as much the seller’s choice as it was the buyer’s)
  • excitement about what’s to come (the seller should coordinate with the owner and mention what one or two positive changes that might be coming down the pike)

The former owner also needs to signal a changing of the guard and that decisions now need to be run by the new owner. This will take some getting used to!

This is also a chance for the new owner to return the favor. Talk about:

  • what was attractive about the business in the first place
  • what led to pursuing a transaction
  • any interesting discoveries during the diligence and closing process

The new owners shouldn’t be afraid to lavish praise on the company and the team. There will be plenty of time to get back to work, but this is a moment to pause and celebrate. Not all businesses are worthy of a sale, and the compliment paid to the whole team in an acquisition should be driven home.

Share Enthusiasm

One of the positive changes that a new owner can offer is a pay raise. While this may not always be possible, even a very small raise would still symbolize a positive change and make sure employees realize from the start that their livelihoods are not in danger. This could also be tied together with letting everyone know that there will be a retention bonus for all who stay up to a certain date. Those bonuses can be settled in individual private meetings.

Ask for Feedback

Also prepare employees for those private meetings by letting them know you’re going to be asking them for frank feedback. What should the company stop doing? What should it start doing? How do employees see their future with the company in the short and medium term?

Apart from things related to the company, employees should be prepared to share their own personal and professional goals. This will give both the new owner and the employee a chance to see whether there’s any synergy between things that an employee is pursuing personally that might find an outlet professionally.

For example, if someone is working on being a better public speaker, could that same employee be given more opportunities to speak publicly for the company in given situations? If an employee is passionate about a particular local charity, is there a chance for that charity to offer a volunteering event for the company in general? Just because something hasn’t been done before shouldn’t rule out possibilities in the “new” company.

One of the most important aspects of any successful business is the quality of its employees. Since they probably know nothing about the new owner, this is the perfect opportunity to make a great impression on every level. Don’t ruin your first chance to make a great impression.

We’ve actually been present at a few of these meetings and can help you make yours great. Ask us how.

Looking for Businesses on BizBuySell

Looking for Businesses on BizBuySellA fair number of clients come to us because they first did a search on BizBuySell. It’s the Amazon of business buying and selling. It hosts tens of thousands of active listings at any given time and if you do a basic search in the Kansas City area, as you browse through the listings you might even run across an Apex ad!

Our goal in this article is not to turn you into a BizBuySell client (because face it, we’re better), but to show you how those listings can help hone your own criteria as you shop for a business.

Geography

When you get to the site you’ll notice the very first prompt is geographical. Once you put in your state or city you’ll see the next field defaults to “all industries.” If you want to get a broad swath of choices, opt for a state instead of just one city. 

Price

As you look at your search results, you’ll see different filter options. The next logical filter to use is price range. No point looking at businesses that aren’t a good fit for your financial position.

Once you’ve put in your price range, you’re going to have an even narrower range of results, but still high-level enough for us to have a lot of options.

Asking Price vs Cash Flow

The most worthwhile listings are going to list cash flow right underneath the asking price. This allows potential buyers to immediately assess whether this proposition makes sense and is worth pursuing.

For example let’s say you see an asking price of $300,000 against a cash flow of $150,000. That’s a 2X multiple, which is standard for Main Street service businesses. That might be worth looking more deeply at.

Or you might see something listed for $500,000 and instead of cash flow it says “asset sale.” This is a different proposition from a standard business purchase and is going to require more work. That doesn’t mean it’s not potentially a good deal, it just means it should go in a different bucket among what you’re considering.

You don’t have all the time in the world to look at every listing, so you should first consider the ones that list cash flow. The businesses are usually pretty confidentially listed (though you’ll occasionally see a name, picture, and website of the business!) so there would need to be a good reason not to list cash flow. These might take extra investigation.

You can probably also skip past businesses which have high multiples but low cash flows. For example, if a business is doing $10M in revenue with $2M in cash flow, it wouldn’t be unreasonable to see a price of $8M or higher.

But if your business is doing $300,000 in revenue, with $30,000 in cash flow, and you see a price of $200,000, you’re probably looking at a pure asset sale (equipment and inventory). This may be a more distressed business that you might want to skip.

Industry or Business Type

Now it may seem funny that this is the last category we consider, but you have to realize it’s a lot easier to find a business that you might be a good fit for once you’ve taken a look at it versus insisting on only a few types of businesses that you are willing to look at. You really never know what might be a good fit.

On the other hand, be willing to be opinionated about what you want to do, because, after all, this is going to be a big part of your life going forward. If you don’t see yourself in an event rental or pest control business, cross those off your list. 

What we recommend is keeping an open mind. The game of entrepreneurship is the same across many industries and business types. If entrepreneurship is what you’re after, there are many businesses that can suit your purposes. 

Just as many might have found a career through what seems to be a combination of chance or providence rather than a set plan, so too the right business for you might not have been the one that you imagined, but the one that was a perfect fit, once you’d looked at the numbers, the opportunity, and had a chance to do your due diligence.

BizBuySell has a tremendous service, but they don’t have access to a lot of our private listings. If you want those, give us a call and we’ll be happy to share them with you.

7 Qualities of a Qualified Buyer

7 Qualities of a Qualified BuyerWe’ve discussed questions buyers need to ask themselves before buying a business and we’ve also talked about three things that can help buyers make a great start after they buy a business. Today we’re going to talk about the qualities of a qualified buyer. The more of these you have, the higher your chances of being successful in business ownership.

An Entrepreneurial Spirit

You don’t have to have owned a business before or even run lemonade stands when you were a kid. Entrepreneurial spirit is about questioning the status quo (could this be better?), seeking growth and understanding (not just continuing education that you have to do, but general enrichment that you choose to do), and taking on challenges and opportunities (always being open to doing something new).

An entrepreneurial spirit, even if you’ve never been an “entrepreneur,” is key to business ownership.

A Management Background

You don’t need to have managed teams of hundreds or dozens of individuals. Even managing a handful or one person will open you up to the challenges of communicating with a different person, taking into account his/her personality, working style, and level of motivation.

Those who “don’t like managing people” won’t do well in business ownership.

A Willingness to Lead

Not every leader seeks out leadership. Cincinnatus famously was working on his small farm when he was appointed dictator to help rescue Rome. He defeated the enemy in a single day, celebrated a triumph in Rome, then went home to farming. He didn’t seek leadership, but when it came to him, he embraced it (and saved Rome).

Many consider themselves “reluctant” leaders. That’s okay; business ownership will give you the opportunity to put that reluctance aside and embrace the personal growth that comes from exercising your leadership muscles.

An Ability to Look at a Broad Range of Activities

A day/month/quarter/year of a business owner has regular cycles of things that will require knowledge and expertise you may have to develop.

Perhaps you’ve never looked forensically at books and budgets before. Or you’ve never iterated through a marketing and PR campaign for a business. Or examined SaaS products to see which has the best value for your business. Or run payroll. Or managed vendors.

You’ll have to do at least some of these activities as a business owner, and that means in some cases you’ll be starting from scratch. Bring humility and a student’s attitude of “always be learning” and you’ll be fine.

Support from Your People

Sometimes you’ll have opposition to business ownership from some people in your life, and that’s healthy to an extent. You need people pushing back so you can better articulate your reasons for buying a business. But if you have opposition from a spouse, for example, that’s a red flag.

Get signoff for your major life decision of buying a business from the people who are major in your life.

Comfort with Making Decisions with Incomplete Information

While some people can make decisions before they’re even asked, and others need all of the research possible and then years to ponder that info, business owners are often in between those extremes. They will be asked to make decisions and will be given some time to make them, but they often will not have all the information they would like, sometimes because it’s not available (“Will this marketing campaign work?”).

Business owners already have, or are open to acquiring, the ability to make decisions when needed, knowing that sometimes the wrong decision will be made, and out of that should come a lesson, not regret.

Knowledge of Industry

Of all the ones we’ve listed above, this is the least necessary, but it would be foolish for us to say that industry knowledge isn’t a major advantage, if you have it. The only caution we have here goes back to the idea of continuing ed and a student’s mind. Don’t ever get complacent about “what you know” and be open to the fact that there are things you don’t, even in an industry you may have worked in for decades.

If you like what you read here and want to listen to a podcast discussion on qualified buyers, you can find that here. If you have several of these qualities, we’ve got businesses you should take a look at. Give us a call.

7 Qualities of the Best Franchises

FranchisesFranchising continues to grow year-on-year and there seem to be ever more choices and opportunities in more and more segmented markets.  How do you spot the right opportunity?  We’ve seen our fair share of franchises over the years so we’ve put together a list of the qualities we consistently see in the best of them.  

Strong Brand Presence

The strongest brands have a great name, visibility, and buzz.

A great name instantly indicates what you do.  If you, as a stranger to a brand, respond with, “What does that do/mean?” to a brand name, that’s a reaction plenty of other people will have, and as Tom Brady says, “if you’re explaining, you’re losing.”  

The best names are worthless if they aren’t backed up by visibility: where is an example of the franchise running?  Is it creating a buzz that people are talking about?  If it’s been established for a while, do people still speak with pleasure and excitement when talking about the brand?

Proven & Profitable Local Marketing

The key here is “proven and profitable.”  You can ask for examples of current marketing materials to see how well done they are.  You can also call and ask franchisees how the marketing works and what sort of return they see on those local marketing investments.

Operating Manual & Training

While you’re unlikely to be given a manual or be allowed to sit in franchisee training until you’ve committed, this is yet another area in which you can simply ask franchisees:

  • How thorough was the training?
  • Did you feel prepared to run your business afterwards?
  • How is the ongoing training?
  • How detailed is the manual?
  • What online resources do you have to complement the training and manual?

“Use a proven system” is one of the major bragging points of franchises and the backbone of any system is the training.

Friendly Corporate Culture & Communication

This is one of the shadow indications of what franchise life will be like.  How do corporate staff interact with you on the phone?  What’s the feeling like at Discovery Day?  What’s the CEO like?  What’s the overall spirit at the corporate level?  Remember that this will directly affect your experience (and profitability) as a franchisee.

As with many of these qualities, ask the franchisees for what their experience has been like.

Franchise Association

Many franchisees don’t realize that it’s important to have a forum for their voices to be heard that stands apart from official company channels.  A franchise association that is recognized and approved of by the franchisor is an important quality of the best franchises.

Such associations offer a space to discuss brand and system matters while minimizing the distracting rabbit holes of individual disputes, which should always be between franchisor and franchisee.

Strong Standards

A simple question to get insight into the standards of a franchisor is, “Have you ever turned anyone down, and if so, why?”  A “Yes” answer isn’t required here, but it is reassuring to get a sense that standards beyond net worth and financial capacity matter to the brand, because every franchisee in the system, in a way, can affect you.  You don’t need to demand the tougher-than-Harvard-admission acceptance rates of a Chick-Fil-A, but strong standards do matter.

Territorial Exclusivity

This is a principle universally accepted by franchisors but uneven in its application to franchisees.  Don’t rule out wheeling and dealing with current franchisees who have locations that are more geographically desirable to you.  Just because a territory is “closed” doesn’t mean that deals can’t be cut.

Are you considering buying a franchise or a business run with the reliability of a franchise?  We might have some great fits for your personality and finances.  Give us a call.

How to Buy Part of a Business

How to buy part of a business.Sometimes a business owner isn’t interested in selling his/her entire business, but for various reasons is open to selling a portion.  While a lot of the rules and processes for a regular “entire” business transaction remain the same, a few key aspects are unique to a partial business purchase and we’ll examine them in this article.

Why Buy Part of a Business?

There are reasons for both buyers and sellers to buy part of a business.

Sellers may:

  • Need financing (they haven’t cultivated a good relationship with a banker or don’t qualify for alternative financing)
  • Want a strategic partner (they need your area of expertise in the business and are having difficulties hiring for it)
  • Want a graduated exit plan (they consider the best way to sell their business is to someone slowly, over time)

Buyers may:

  • Want a de-risked entry into a business (they like the “try before you buy” aspect of buying a portion of a business)
  • Want to learn a business before buying it in full (a more technical or complicated business might require a bit more of a learning curve)
  • Not have the means to buy the entire business (even with seller financing the entire purchase price may be slightly out of reach)

How to Buy Part of a Business

When buying part of a business you’re going to go through the same LOI or Offer to Purchase process.  The first difference will be in the amount of the business you are buying.  Instead of buying the entire business, you will be buying a specified portion, usually in the form of stock in the seller’s company.

The two most important aspects of the document buyer and seller will sign are the buyout clause and the rights of the buyer.

Buyout Clause

When only buying part of a business you must spell out the conditions by which you may purchase the rest of the business or by which you may sell the portion of the business you already own.  You will likely have used a valuation process to determine the share of the business you are currently buying.  Will that same valuation process be used at the time of the next purchase?  What timeline will be used to buy the rest of the company?  What flexibility will be incorporated into the timeline?

Rights of the Buyer

This aspect will be primarily determined by the reason(s) the seller has agreed to sell a portion of the business to you.  Were you brought on just as a financial partner, essentially silent?  In that case, you might only have rights to see financials at certain times of the year.  Were you brought on as a true business partner, with decision making power?  If so, how is that decision making power spelled out in relation to your ownership share?  Be as detailed and explicit as possible, covering every scenario you can imagine.

Final Thoughts

Buying part of a business can be a great opportunity to buy into a business with a lower upfront cost of capital while delivering an “on the job” learning experience to help you be a very strong owner when you do take over the business.  But this can only happen if you’ve spelled out your role and your rights in the transaction document.  Needless to say, this isn’t something you should take on your own.  A broker (cough cough) can help you stay objective and focus on what you want and what is possible, making sure the two meet on the dotted line.

We don’t often sell parts of businesses, but if this is a scenario you are contemplating, we have the expertise to assist.  Give us a call!

Start with Why: What Business Buyers Should Ponder

What Business Buyers Should PonderIn the hundreds of articles we’ve written over the years, we are consistently asking questions.  We’ve posed questions that buyers should consider when they already have a business in mind.  We’ve also asked questions about business ownership in general, including the concepts of buying a business vs. buying a job and buying vs. building a business.  If you’ve watched various events unfold in the last two years and want to take more control of your destiny, business ownership is certainly one way to do that.  Here are four questions to ponder if you’re considering that first step towards entrepreneurship.

What Skills Do I Bring to the Table?

If you’ve owned a business in the past, you may remember what you did well.  But it’s also important to note what you struggled with.  How will you deal with that this time around?  Have you improved since then?  Will you hire someone to fill that gap?

If you’ve never owned a business, don’t get trapped by your job descriptions and what you currently do for work.  Take a look at your work history and see where you’ve excelled.  Ask colleagues who know you best to tell you the areas in which they consider you to be among the best they know.

What Support Do I Have?

Business ownership can be lonely and there will be nights you may be grinding through problems.  Who could you call to help you?  

What about your family?  Are they supportive of the possibility of business ownership?

What financial resources can I tap should the business get in trouble?

What Research Have I Done?

If you’re looking at a business in a field in which you have a lot of experience, what additional research have you done?  It’s important not to rely on what you already know, as you will have blind spots.

If you don’t have a particular field that you’re interested in, have you examined general business trends and opportunities to see what appeals to/resonates with you?

What Do I Want?

So many decisions have been taken off the table for so many people in the last two years as many have had to take a reactive approach to life decisions.

Business ownership is par excellence and a proactive life decision.  What is it that you truly want, not just in business ownership but in life?  How will running a business help you achieve that?  What kind of timeline do you want that to occur in?

Running a business can be hectic, and sometimes you’ll need to make decisions quickly.  That’s why you should relish the opportunity to ponder important questions without any pressure.

If you take the time to answer these questions in an in-depth manner, your first conversation with one of our team will be really productive!  Once you’ve got the answers to these jotted down, feel free to give us a call.

Buying “Essential” Businesses in 2021

Essential BusinessesWe continue to encourage our clients to look uncertainty in the face and move forward with plans to buy and sell a business in 2021.  But one of the new categories of business that people are asking us about are “essential” businesses, who did not have a “bad” year in 2020, but quite possibly their best ever.  In this article we’ll talk about a few of those business types.

2021 Essential Businesses to Buy and Sell

These businesses are in demand and as such may fetch a premium in the marketplace, but don’t discount the fact that there are always owners who are ready to get out, even after having a record-breaking year.  They are just looking for the right buyers.

Healthcare

This is the most obvious “pandemic proof” business.  In fact, it’s not just pandemic proof, it fits Nicholas Nassim Taleb’s classic definition of “antifragile” – something that improves when faced with a challenge.  Both clinical and non-clinical businesses in this field are doing well and even with the end of the pandemic in sight, there will still be plenty of opportunity in this sector even when the masks come off.

Tech

Not all tech businesses have been as fortunate as Zoom.  For perspective, this time last year Zoom was averaging around 10 million daily participants.  Today that’s around 350 million.  Its company revenue is four times what it was in 2019.  But if you’re in a tech business that is supporting remote work and learning, as Zoom does, it’s a very good time for you.  

This is because habits have been so quickly and dramatically altered that new models and ways of interacting have been created that these tech businesses will need to support long after a pandemic is over.

Real Estate

As workers were told they were allowed to work remotely for a short time, then indefinitely, we’ve been witness to a “great migration” that hasn’t been seen in America in generations.  Obviously realtors are enjoying this, but any business that supports a movement of people and their goods, like home contractors, HVAC, electrical, or moving companies, are also riding this wave.

Recurring Revenue

As people started trimming expenses to adapt to changing conditions, many businesses adapted their pricing to match.  Instead of requiring a large annual payment for a subscription or fee, companies started offering a monthly subscription where they previously had not.  Others chose to create new subscription models for their businesses as John Warrilow champions in The Automatic Customer.  In “normal” times buyers love to see consistent recurring revenue.  That revenue looks even sweeter in “bad” times.

We are working with buyers and sellers in every single one of these categories.  If you’re serious about moving forward with your life in 2021, give us a call!

Cash Versus Accrual Accounting: Which to Use?

Cash Vs Accrual Accounting: Which to Use?Unless you actually run an accountancy or bookkeeping business, accounting isn’t usually at the top of a business owner’s mind. But if you don’t understand your books, you don’t understand your business, and the choice between cash and accrual accounting is a choice about how you choose to view your business, so it’s an important difference to know about (and make an informed decision on).

Cash Accounting

This is the type of accounting that is used by many small businesses and for personal finance. It is called “cash” but obviously deals with whatever forms of payment you take.  You enter revenues when you receive revenues and you enter expenses when you pay expenses.  

Pros

  • The process is simpler and easier, both for you and for your accountant
  • You get an excellent short-term, day-to-day glance at your business
  • Your bank balance bears resemblance to your bookkeeping

Cons

  • You cannot make long-term decisions based on this type of accounting
  • These books can sometimes provide an inaccurate picture of the company
    • E.g. you could have a very large amount of cash on hand but have payables that exceed all of that amount and then some

Accrual Accounting

This is the opposite of cash accounting. You book revenues when you have an agreement in place (even if you have not been paid) and you book expenses when they are incurred (not when you have paid them). 

Examples:

  1. A client signs up for one of your products and services in March, but they will take delivery in April, hence they may not pay you until then or later. But in accrual accounting you book that revenue in March, not April.
  2. A vendor sends you an invoice in June. It is due in July. In accrual accounting you book the expense in June.

Pros

  • This is the type of accounting that investors want to see because it gives a better sense of the long-term performance of the company
  • It’s more accurate (and GAAP recommended), because you have a better view of the profitability of the company over an entire year

Cons

  • Because you have to record revenue before actually receiving it, cash flow is tracked separately
  • This type of accounting is significantly more expensive in time and money
  • You don’t have a short-term picture of your business

The Choice

Many businesses can choose which type of accounting to use, but some can’t.  

  1. If you stock items to sell to the public and do more than $1M/year in revenue, you have to use accrual accounting
  2. If you do more than $25M/year in revenue, the IRS requires you to use accrual accounting 

If you do want to switch over from cash to accrual you can’t just decide to do it, you have to ask permission of the IRS via Form 3115, and if they approve you, you have to stick to that choice for the whole year. No changing mid-stream.

Small businesses without a lot of cash on hand and are primarily B2C will often choose cash accounting, simply for the ease of it. Businesses that keep a large inventory or don’t get paid quickly will often choose accrual accounting, simply because it makes more sense.

This is ultimately a decision you should make with the advice (and consent?) of your accountant. He/she knows your business, knows its cash flows, but most importantly, knows you, how you deal with different financial statements, and what your long term goals with the business are. Armed with that information, it’s easy to figure out whether your business should be using cash or accrual accounting.

If you want us to take a look at your books to see whether you’re in a good position to sell, we’re always happy to not just look, but offer suggestions on what you can improve and clean up to get ready for a future sale. Give us a call today.

Buying Distressed Businesses During the Covid Crisis

Buying Distressed Businesses During the Covid CrisisWe’ve seen a lot this year. We’ve seen businesses thrive and have some of their best years ever. We’ve also seen businesses go under and deals fall apart. But, we’ve also had deals move on just as usual, albeit a bit more slowly due to extra diligence from the banks. But as the year comes to a close there might be some owners who are feeling particular pressure to sell now and some buyers in the market looking for a particularly good opportunity. In this article we’ll discuss a few things for buyers to keep in mind.

What’s the Distress?

All businesses faced a new landscape in March 2020, even if they were a company that could continue doing business. Their vendors and customers may not have been in the same position. Some businesses may have already been in some distress prior to the lockdowns, and the changed landscape simply made things worse. So, a drop in sales is not the only thing you want to examine as you’re exploring a purchase of a distressed business. 

You’ll also want to see if there are:

  • Any ongoing debt issues. Does the company need cycles of financing that has put it into a poor financial position pre-Covid?
  • Any legal issues. Does the company have any liens or cases pending?
  • Payroll problems. Did the company receive an EIDL or PPP loan? Will it be forgiven? Are there payroll issues that PPP did not solve or were systemic prior to March 2020?
  • Any staff issues. Some key management and personnel may have had to leave in the last eight months. Are the right people in place to keep the business functional?

What Can You Do?

You need to have a strategy in place. It’s not enough to simply covet “a good deal” on a business during this time period. You need to think about what you bring to the situation.

Examples include:

  • Can you do better than the current ownership?  
  • Do you want to strip it down to essentials and possibly run that form of the business? 
  • Do you want to simply buy the assets and add them to your current business?  

You should think about a distressed business the same way you might when buying anything that you weren’t particularly in the market for, say a piece of clothing that’s on sale:

  • It’s not the color or fabric you want (this isn’t necessarily the business or industry you were considering). But, it has a brand and employees.
  • It has a nick or two (things aren’t exactly as you would like them to be). But, the business has customers and some cash flow.
  • It’s not the time of year for this item (you were maybe thinking of buying later next year). But, there’s an opportunity right now.  

Bring in your accountant and other members of your inner circle to look at the books and the opportunity to make sure you stay level headed and take on something that really makes sense, not just something financially attractive. The more coherent a plan you have that clearly states what you are going to do with the business, the better chances you have that such a plan would actually work.   

Financing

Unfortunately this is not going to be something you can get SBA funding for.

You’ve got three options if you don’t have the cash on hand to make the purchase outright:

  1. Talk to the seller’s lender (if they have one). Find out if they are willing to work with you. You’re going to need to tell them what your strategy is.
  2. Talk to your lender. Explain the situation and see if they are willing to give you a loan; they may be willing to put a lien on hard assets as collateral. This is yet another situation in which a quality banking relationship can come in handy.
  3. Explore asset-based lending. This is the most expensive type of financing you’ll find, similar to some of the fintech solutions we’ve discussed in the past, but these types of lenders do deals all the time and might offer you something that works into your plan.

We’ve got all sorts of businesses available at the moment.  Whatever you are looking for, give us a call and let us help you find it.

Questions for Buyers to Ask, Part 3

Apex Business Advisors: Questions for Buyers to AskThere’s almost an infinite number of questions you can ask sellers about the business you are considering buying from them. The response to previous articles we’ve done on these questions has been enough for us to add Part Three. While these are questions for buyers to ask sellers, they’re also good questions for future sellers to ask themselves so they can improve their businesses now.

If I had to start all over again, what 1-3 things would I do differently?

Most business owners don’t necessarily take the time to write down their mistakes or share them with the public. But in a certain sense, they have a lot to gain from telling you. Those mistakes are resolved and in the past. They can be a way to talk about opportunities that can re-emerge with a new owner. Perhaps there was an employee or a vendor that had a personal disagreement with the current owner, but would be open to working with a new owner. This particular question, if asked in a friendly and non-confrontational way, has a chance to build a lot of personal rapport. The seller has to be a bit vulnerable and admit where he/she could have done better. As a buyer, you’re also able to brainstorm with them as to possible solutions.

What do your customers say you do best? Why do they choose you instead of the competition?

Here it’s important to have customer data. Yes, the business owner knows this information, but we want that cross-correlated with what the customers have to say. Many times a business owner who feels he/she knows the answer by instinct has been surprised by the results of a customer survey. The competitive spirit in any business owner can make it hard to admit things that a rival does better. If the business owner doesn’t really have a good answer, find a discreet way to find out for yourself (which can include calling the competitor). 

What percentage of business comes from referrals and/or repeat clients?

We know that referral business is the best business. When referrals happen, you don’t have to spend advertising and marketing dollars. But most businesses are not 100% referral based. Find out what percentage is referral based and why it’s at that level and not higher. Is the business set up for repeat business? Are there extensions or products and services that could turn a one-off client into a repeat client?

What are the licenses and permits you need to operate, and what are the technical qualifications that the staff need?

Whether we like it or not, there’s a fair amount of regulation in certain industries. You need to make sure all of that is documented and, as part of diligence, that you can obtain the licenses and permits yourself in the transition. Does the industry require any type of certification for your staff? How long does it take to acquire and how much does it cost?

What’s the status of your website and back office technology?

This is an important question, and one that business owners forget about because it’s not in their faces every day. Is the website equipped to deal with current web trends and basic SEO demands? Are the back end systems that connect to the website backed up to the cloud? If not, why not? Do the employees understand how to use this technology to the fullest extent? Are there software upgrades or purchases that the current owner has been considering? What are they and how can they help?

You can find Part One of this series here, and Part Two here. If you have some to add to this series, give us a call and let us know!