Unfortunately, many buyers get bogged down with the black and white aspects of a business (i.e. financials) but in reality, quite often, the more important issues are the gray areas.
Don't get me wrong; financials are key, but numbers don't lie - people do. Since most buyers will actually purchase a business outside of an industry they are familiar with, it is crucial to get a true understanding of how the business works and what it will take for you to be successful.
Now imagine you are being interviewed for a new job. The prudent prospective employee gathers as much information as possible about the company, its hiring practices, perhaps researches what other new candidates have gone through, asks the contact person what to bring, expect, etc. All normal stuff right?
How is it then that a business buyer, who will be "interviewing" for the most important job of their life usually comes unprepared?
One of them that you will want to ask every seller is, "What keeps you up at night about the business?" In other words, what's their primary concern? If they say "nothing" they're full of it. Every business has headaches and every business owner labors over certain aspects of the business.
Failure to disclose any of their heartburn only means they're hiding the core issues.
Their answer will give you tremendous insight into what will likely be the major hurdle/challenge/obstacle you will face. For example, if you're looking at a retail business, it's likely that the seller will tell you that their biggest headache is finding good people. So there you have it. If you aren't someone that has a reasonable talent to identify good workers and also to interact with them in a manner that will allow you to retain them, you may have a problem. Furthermore, you also have to be the type who feels as comfortable firing employees as you do hiring them. Some people just don't have it in them, which is understandable but, it's not something you can circumvent. If you own a business with staff the time will come to fire someone. It's not always pleasant, but that's just part of the job.
So now back to the key questions. In order for any buyer to get comfortable with a potential purchase, they have to eliminate their doubts and concerns. The only way to do so is by systematically investigating the business. One of the most important stages to do so is during discussions with the seller. Your questions are the platform for those discussions. If you aren't adequately prepared with the key questions to ask, or know what specific answers to look for, well, chances are you'll never get to that requisite comfort level to close a deal. As mentioned earlier, there are 36 key questions to ask every seller that are discussed in great detail in all of our "How To Buy A Good Business" guides. Being equipped with those key questions is fundamental to your success and will often times make the difference between buying a good business, or getting stuck with a garbage one.
This article represents a fraction of what you’ll learn on this topic in the How To Buy A Good Business At A Great Price© series - the most widely used reference resource and strategy guide for buying a business. To learn more click here
Over the past twenty plus years, I have worked with many business owners who were trying to sell their companies. Much of my work focuses on assisting owners in preparing their busContinue Reading >
This blog received a great comment from Layne Kasper of the M & A firm Kasper & Associates after last week’s article about the need for individuals to truly understand thContinue Reading >