Continuing my series on buying a business, here are summaries of four critical factors to consider when acquiring a small business.
Old sellers are the best sellers
One of the best opportunities to acquire an existing business is when you can buy one from an owner who wants to retire from a business that’s still viable. Two good reasons are: They’re less likely to change their mind before the transaction is complete, and they’re more likely to finance a larger part of the sale price to get monthly income.
Notice I said, “still viable.” Sometimes the end of the current owner’s career coincides with the end of the life of the business. Don’t buy a business that should retire with its owner.
Assume skeletons in the closet
Every business has baggage. Every business! If your due diligence doesn’t find any, you didn’t look hard enough. Or even more dangerous, you want the deal so much you rationalize what you found as “not so bad.”
When you find the bad news, let the seller explain why it’s there. If you think you can live with it and turn it around, try to turn it into negotiating leverage. If you can’t, walk away.
Cold feet at closing
After no small investment of time and money putting a small business acquisition together, many deals derail before consummation—sometimes literally at the closing table. Last minute reluctance doesn’t have to kill the deal if you’re prepared. The key is to anticipate this possibility and be prepared to take appropriate communication, negotiation, and contractual steps along the way to protect yourself.
Oh, by the way, you might be the one with cold feet.
When to stop negotiating
Once both parties have signed the purchase contract, what’s left is to execute the transfer. There are many steps in this process, including legal, financial, physical, and organizational hand-off. What should not be done is any further negotiation.
The signed contract stipulating the terms of the deal is now a legally binding document. Any subsequent negotiation will likely corrupt the work that has gone before. Don’t sign the purchase contract until you have no more deal points to negotiate.
Finally, buying a business is likely the most important transaction you’ll ever make. Do it for the right reasons, be patient, resist the urgency of others, conduct proper due diligence, negotiate the best deal for yourself, and be prepared to operate what you buy.
Write this on a rock … Just like a marriage, don’t enter into the state of business ownership inadvisedly.