How did you go about buying your business?

September 9, 2018 7:39 PM

[Australia-filter specifically, World-filter broadly] OK, you’ve purchase an existing small to medium sized business. I’m very interested to know about your experience and the approach you took to become the new owner.

I’m researching the process of buying an existing business (or even buying into an existing business). I’m not so much worried about the kind of business, although that may be relevant for your answers, rather how you went about finding it, vetting, purchasing, and managing.

For this purpose, I am not interested in franchise experiences, as franchises are a process unto themselves which is typically heavily supported by the franchise itself.

I'd like to hear about experiences in Australia and especially Sydney, and I’m also interested in a broader understanding of the opportunities and pitfalls associated with purchasing a business in any country.

I’d love to hear about the happy surprises and pitfalls in your journey too.

Don’t feel obligated to answer all these questions!

1. What country is your business located?

2. Have you purchase a business before?

3. How did you go about finding a business you were interested in? Was the industry a passion or just a good opportunity?

4. Was the business struggling or already self-sufficient when you made an offer?

5. Did you go through a broker? How did you find the one?

6. Which professionals did you rely on (brokers, lenders, lawyers, accountants, contractors, interior designers, recruiters, agencies (marketing, design, etc), business consultants, etc) and how did you find them?

7. Of the professionals you used, which were most helpful?

8. How are you set up as a trading entity? Sole proprietor, LLC or LTD, Corp, NFP, partnership, etc. Why did you chose that particular entity?

9. What resources (online, other professionals, books, etc) were most helpful? Which were misleading or not terribly useful?

10. If you negotiated the price, did you have help?

11. If you procured a loan, what percent of the total was offered? What amount were you comfortable taking on?

12. If there was a handover from the previous owner, how did that go? Was there adequate management by existing staff?

13. Have you kept your business offering the same over time, or if it’s a recent purchase do you plan on moving the business in a new direction?

14. What do you think I forget to ask?


Either point by point answers or narratives are fine. Anecdotes are welcome too.

posted by qwip to Work & Money (3 answers total)

Hi!

I'm in the USA, and not a business owner, but I have had two experiences where I was working for businesses that were "bought out". I'm writing this assuming you are buying a business that has employees due to your mention of "staff" above.

I think keeping your staff in mind when buying the business is important. The human capital behind a business can easily make or break an acquisition. If the staff is uncertain or unhappy, their quality of work will quickly go down, and the business will immediately suffer due to that.

So, in the two situations where there was an acquisition, they were both "Small businesses" which have about 20 employees. Owners would come in and try to fill the shoes of the previous owner; they would have a large staff meeting, say everything is going to be the same, and say if you have any questions/concerns to come to them. Then, they start changing a bunch of crap. They start doing things that the employees think are wrong: taking long golf or rotary meetings during the work day. Coming in late or leaving early. Picking "favorities" among the existing employees - usually the "suck up" employees. Changing benefits or pay in an unfavorable way. Raising prices. Losing a main client.

Something - something that makes the employees lose confidence in the new owner. Then, the employees start to feel resistant to anything else that's new. They grumble and gossip. They still work hard - but make their opposition to the new owner clear. It's not anything specific, they say, it's just that the new owner doesn't have the same respect as the last guy. The new owner tries to throw meetings, parties, meet with the people the most, but once the seeds of disrespect come in, they only grow. Soon, the new owner decides that they are tired of it. They don't need respect - they'll just force it. They fire the biggest dissenter (usually a high performer). They cut benefits further. They become less approachable and more belligerent. They take the business in a new direction. They hire someone young (if they can) that they know will be on "their side". They make sure to position themselves on top - no longer listening to pithy complaints of underlings.

And they start making decisions that obviously hurt employees. Less vacation. No Bonus. Maybe they replace the coffee machine in the break room with a vending machine that costs money. Act like the new machine is better, but in reality they are profiting off of their employees.

I know this sounds dramatic, but it has happened to me twice. So, I'm not positive what the solution is here. But my guess is - when you approach the new company, make a strong effort to be the best you can be. Be the hardest working one there, and spend time in each department getting to know employees, their work, their needs, their family. Admit you know nothing. Don't try to keep a pretense of being "the owner" and "too good" to go out to lunch with the lowest employee. Don't worry about "over-promising" a benefit when your secretary complains about not enough sick days. Try to make it feel like you are listening and changing things for the better, the way the previous owners never did. Try to make the workplace feel inclusive.

In both cases, it was the ego of the new owner that caused them to fail (lose large clients, key employees, etc). They came in with confidence and ideas without listening to the staff.

So, uh, I hope this parable is useful to you. I'm sure you are aware of this situation - but I think this aspect is a pretty large part of being a new owner!
posted by bbqturtle at 5:19 AM on September 10, 2018

Years ago I bought a small retail book store in the US. Seller provided sales records, verified by sales (similar to VAT) tax. Seller had negotiated to sell to an employee who changed their mind and seller had already left the US, store was being managed. I spent several weeks researching what it costs to run a store, met with accountants, and met with SCORE - in the US, Service Corps of Retired Executives. I filled out a pro-forma profit & loss statement for the 1st year, in pencil, on a literal spreadsheet - personal computers and Excel were not available. The pro-forma profit & loss statement was extremely useful I was advised to fill in the bottom line with my expected earning, then see if the store could generate sales to make that happen. I paid a reasonable price, seller agreed to lend 1/2, I paid it back faithfully. Over 5 years I more than doubled sales, renovated, and learned an incredible amount. I did have experience working in book stores.

Buying a business meant that vendors were willing to work with me, it had a great location, existing customers. Having employees is a massive pain, the US IRS(Tax Service) is not fun to work with. I was lucky that bookstore employees tend to be pretty great.

I kept good sales records, developed relationships with publishers. I made a living and I sold the business profitably after 5 years.

The selling broker only cared about his commission. Later, I was contacted by a broker who said they had a buyer; they were unprofessional and poorly organized. I sold it on my own. One of the pitfalls is that I was young and though professionals knew more than I did. I encountered lots of incompetent or not highly competent professionals, esp. accountants. This was 30 years ago, I'm female and sexism was and is real, but, hey, I persisted.

Don't be in a hurry. Do a ton of research. For me there were advantages to an existing business, and the seller was motivated. The market for a small business is narrow, there are opportunities out there.
posted by theora55 at 11:27 AM on September 10, 2018

Thanks to both of you for the feedback. Very helpful.

theora55, you mention doing a ton of research. What research was most helpful? Any areas you wouldn't bother with if you did it again (although great the first time out because you don't know what you don't know)?

bbqturtke, glad that you called out the experience from the perspective of someone impacted by a purchase. My intent with these questions is to understand how one might "design" an agnostic approach to creating sustainable and empowering businesses for everyone involved, even if that means rewriting our understanding of what "should" happen. Part of this is getting feedback and perspectives from a diverse perspectives.
posted by qwip at 5:47 PM on September 15, 2018