What pitfalls or issues did you look for if you bought your company?
Speaking to the owners out there, did you buy a business? If so what were some of the primary concerns you had, or issues you looked when choosing your company?
Very good question. Generally, the first question I always ask my clients who come to me about purchasing a business is
'how much does the business rely on the person who is selling?'
If a lot (ie all the sales go through the existing owner or customers like to talk to them and them alone) then the business relies on the owner. If you then purchase this business there is a risk that customers will not wish to transact with you because the relationship has changed.
The second question I ask is
'How good are the systems or procedures that run the business'
For example if all the know how is in the head of Norris and Norris is 72 years old and about to retire when you go in it is going to take you a long time to run the business. If on the other hand they have a systems or procedure manual it makes life easier.
Agree. You want to be purchasing somewhat a self-sustaining engine. Systems and structure as opposed to a business that's reliant on people.
I didn't buy my business but I support others who chose to. It is essential to ensure that the main foundations of the business are strong. After that, goodwill and great relationships with clients and customers are a big consideration.
Thanks for answering Deborah! What do you mean main foundations?
From a legal perspective, strong foundations would be things like a good asset structure, good employment agreements and a good lease agreement for a premises. From the financial perspective, it would include a good credit history and good payment relationships with suppliers. The foundations change depending on the perspective that you look at. If there are some weak foundations, they can impact a business in the future unless corrected. For example, a business with poor payment relationships with suppliers, will probably have weaker relationships with those suppliers which may put the ability to deliver your own products and services at risk.
Melissa Profeta, Community Manager at SavvySME
Great insights, Hitesh! Are these the only questions you normally ask to help the customer decide or are there factors that you'd consider first before asking these questions?