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When buying a business, there are several things that you need to consider beyond the purchase price and how you intend to fund and pay for it. When you’re visiting or speaking with the owner of a business, you should ask questions that cover the following –
- History
- Culture
- Accounts
- Regulations
- Employee benefits
- Contracts
- Premises
History
It’s important to know where the company came from and why it started. You’ll get insights into what the owner hoped to achieve.
Here are some questions to ask:
- Why did you start the business?
- Where did you start from?
- When did you start the business?
- What things have you tried that were bad ideas?
- What things did you think about starting but didn’t?
Culture
Culture means the personality of the company. And, like human beings, personalities can clash with your own. When you first learn about a new company, you usually review the financials. Culture is something you need to consider as soon as you have your first meeting with the owner.
You will need to assess how far apart the culture of this business is from what you expect. Changing culture can take a very long time because it needs to be done slowly to avoid staff leaving in mass.
Here are some questions to ask the owner:
- How do you deal with your employees?
- How do you hire and fire?
- What kind of employees do you have?
- What’s the quality of the team?
- Are any of the employees planning on leaving when you sell the business?
- What type of customers does the business attract?
- Which customers are demanding?
- What things do customers complain about?
- Which customers are easy to work with and love the company?
Employee benefits
If you intend to retain the staff – which I would highly recommend because without the team you have NO BUSINESS – they need to see some continuation from the old owner to the new. Retaining their employee benefits or finding ways to improve them is key to your success.
Employees will leave in drones if they think their benefits are going backwards. As much as possible, the less disruption you create, the more likely they will stay on. Don’t rock the boat, so customers continue to see the same smiling faces they are used to.
Here are some questions to ask the owner:
- What benefits do the employees and management team get?
- What time do they start and finish every day?
- Do they work on the weekends or have shifts?
Consider things like holidays, company cars, travel, free lunches, working from home, mobile phones, uniforms, healthcare for the entire family, interest-free loans from the company.
Accounting
Changing the accounting system to integrate with your own is crucial because you’ll need a way to manage the numbers. Also, assess how good their books and records are because this will indicate how much due diligence you will have to do later.
Here are some questions to ask the owner:
- What accounting system do you use?
- Do you manage your business using monthly management accounts?
- What’s your process for invoicing and collecting money from customers?
- Do you claim R&D tax expenses?
- How do you pay your creditors?
If they have poor accounting procedures and management, that should be a red flag to you that you might be buying a dud.
Contracts
As early as possible, aim to review the contracts the business has with vendors, banks and clients. You’re looking for anything that could cause a problem.
You may want some of those contracts to continue, and some to cease. Either way, you should know what the company is legally obligated to do so you can make a wise decision of what you are inheriting. All liabilities will transfer to you as the new owner, so buyer beware.
Here are some questions you can ask?
- What contracts does the business have with suppliers?
- What are the terms and conditions you offer customers?
- What contracts do you have with any third-party service providers like your telephone service, internet and software apps?
Regulations
Every business has to conform to rules, and some industries, especially in the financial and construction sector, have more rules than others. You should be aware of any industry, sector-specific, government and environmental regulations the business must comply with, and what the costs are.
Here are some questions you can ask:
- What regulations does the company need to adhere to?
- Do you use a compliance company to manage this part of your business?
- How much do you pay?
Premises
At some point, you will visit the premises where the business operates from. You’re looking to see if the facility is sufficient or a little tight. Is there room to expand if the company continues to grow?
If the premises are leased, you should review the lease documents looking for anything that could be problematic? You’re looking to see break clauses, liabilities, and seeing if it’s easily transferable. Maybe it still has a long time to run before you can give notice, which could cause problems if you outgrow it. Or the opposite, the notice period is short, and won’t give you enough time to find an alternative premise.
Here are some questions to ask:
- Are you leasing these premises?
- Can I see a copy of the lease?
- Where would you move to if you needed to expand?
- How well do you get on with the other businesses around here?
- How is the landlord?
Quite often, the owner will know the local area better than you and could recommend other premises that might be available.
Summary
In summary, it’s worth asking more detailed questions to get a better understanding of the business you’re acquiring, and the best person to ask is usually the owner – if she is the one working in that business every day.
Rutland Capital Partners buy and grow businesses in different sectors. If you’re looking for a safe pair of hands, we could be the perfect exit for you. Feel free to get in touch for a no-obligation conversation.
