When buying a business, asking the right questions during the early stages of negotiations can be key to not only starting a successful acquisition process but also to gaining the relevant knowledge to ensure things go smoothly if and when you take over the business.
If you have an accountant or financial adviser involved in the deal, then they will likely ask many of the legal and financial questions during the due diligence stage. However, there are numerous other matters that may not fall under their remit, but will still be invaluable for you, as a prospective owner, to know.
Why is the business for sale?
Finding out why a business is for sale should be a core priority at the start of any acquisition process. While it may just be the case that the owner is retiring, moving onto a new venture or simply stepping away for some other reason, it is still vital to investigate.
If the business is being put up for sale because it is failing, at risk of entering insolvency, has become operationally inefficient or has begun to lag behind its competitors, then these are things that will likely come out anyway during the due diligence process. However, if you are able to find this information out at the outset, you could save yourself precious time and promptly move on to other targets.
How did you set your asking price?
As you proceed with an acquisition and get to know a business, its financials and overall situation more intimately, you will of course produce your own idea of what it's worth. The likelihood is, however, that this may not reflect how the outgoing owner values the business.
Before the haggling begins over a final price, it will be important to find out why and how the seller has reached their valuation. What method did they use to calculate it? Have they objectively considered the business’ performance? The depreciation of assets? Overall trends within their sector?
If you and your advisers do not feel that the asking price has been set in a way that accurately takes into account the actual state of the business, then this may be a red flag. However, if the asking price appears to be methodical and based on sound reasoning, then this can be the basis for constructive negotiations, even if you don’t yet agree on a price.
Would you remain at the company during a transition period?
If negotiations go smoothly and you agree a deal with the seller, it may be the case that you want to immediately take the helm and start putting your own plans in place at the business. However, in some cases, it can be valuable to receive some guidance from people with intimate knowledge of the company.
You are, of course, likely to get much of this from any employees that stay on post-acquisition, but there are elements of owning and running a business that even longstanding senior employees are likely to be unfamiliar with.
For that reason, it could be worth enquiring whether the outgoing owner would be willing to remain with the business for a transition period. This can serve the dual purpose of both helping you to acclimatise to running a new company and helping staff adjust to new ownership.
What kind of hours do you work?
As with the above question, you most likely have your own ideas about how much work you’ll need to put in to help set the business on the path to achieving your growth plan. But each business is unique and you may find that owning a new company could involve a lot more work than you envisaged.
A short conversation in which you quiz the owner about the amount of hours they typically work in a week can help to give you some idea about the kind of time you might be putting in. Of course, to begin with you’ll probably be working long days as you adjust to the new role and seek to set your plan in motion, but it is still advisable to find out how much the owner is ordinarily working.
