When buying a business, there are of course a huge number of things to take into account and to investigate during your discussions with the seller and in your due diligence.
Due diligence is vitally important and will be how you gauge the most crucial facts and figures regarding a business, but asking the right questions of the company’s outgoing owner can provide you with an invaluable insider’s perspective on the state of the business you’re thinking of buying.
Here are five key questions to put to a seller before making a move for their business:
What is the reason for you selling?
The first and perhaps most obvious question is why they are considering selling. A legitimate, non-business-related reason for a sale – such as retirement or family circumstances – can provide reassurance that they are not walking away due to the state of the business.
If a seller is leaving for a reason relating to the business, then often, in order to preserve a high valuation, they will not be totally forthcoming about this. If you sense that such a reason is behind the sale, then this is something to dig into during your due diligence.
Are employees aware that you’re selling?
Employees are the core of any business and a happy workforce that feels secure in their work can be a company’s most valuable asset. It will be important to gauge during negotiations whether employees are aware that the current owner is planning a sale.
If they are, then it’s likely that they are being kept abreast of the situation and are prepared for a change in ownership. If not, then it may be the case that they only find out once the takeover has happened, at which point it may be down to you to inform them and either reassure them of their futures or let them know of any changes.
How are customer relations?
Customer or client relations are often not a tangible quantity that can be analysed through looking at data and figures during due diligence. In acquisition negotiations it may be down to you to ask the new owner (and potentially ask clients or customers directly) what the state of relations are.
If they are good, then great – all you’d need to do post-acquisition is make sure that this continues. If not, then prepare to try and mend these relationships should you choose to proceed with the acquisition.
Would you be available for a transition period?
Post-acquisition, having the previous owner(s) around to help with a transition period can be extremely valuable. If this is something you’d be interested in having, then you’ll need to make the seller aware of this as soon as possible during negotiations.
Acquiring a business can be a rushed, stressful time and often, in the pursuit of data on the business’ finances etc., crucial details about what it’s actually like running it on a day-to-day basis can be missed. By having the right questions ready to ask the seller, you can ensure that you get the inside track on running your target business ahead of time.