By Dave Driscoll
Last month I shared what it takes to start your own business. Sometimes, buying an existing business is a wiser decision. You can avoid significant infrastructure start-up costs, have a built-in trained workforce, and inherit an established customer base – all in all, a good foundation for success.
There are several keys to ensure a business transitions relatively smoothly from one owner to another…
Be patient: A new owner needs realistic expectations. There will be things that are different than you expected, despite a thorough due diligence process. Accurately understanding every aspect of operations and the various internal and external relationships of any company is nearly impossible until you are living it. There will be hiccups. There will likely be employees who are wary of change, and probably anxious about a new owner’s style. Employees inevitably worry when a business changes ownership; reassure them that they are your greatest asset – they will teach you how things really work, while ensuring consistency for customers. In reality, their jobs are much more secure with a new owner than a burnt-out owner risking declining profits or even closing the company.
Listen and learn: Expanding on the patience theme, take the time to observe the systems and processes in place. Ask clarifying (not judgmental) questions. Of course you will see things you would do differently, but resist the urge to make changes. There may be ripple effects or other aspects you don’t yet understand. Find out the “secret sauce” that has made the company successful. What special niche is your product or service fulfilling? Later you can assess how to further capitalize on strengths, but first you must thoroughly understand the nuances. Balance the advantage of having a fresh, objective perspective with respect for the current process, and eventually you’ll identify and implement well-founded efficiency improvements.
Identify the leaders: Determine who you can count on – which employees know how to solve problems? There may be an unofficial leader that everyone relies on to put out fires or set the tone. That person is an asset, not a threat. Convey your appreciation and learn from that person; chances are, they also have practical suggestions for improvements. Build trust and groom your second-in-command. No healthy business should be owner-dependent, so establish from the beginning that the company does not revolves around you. You should not be responsible for every decision, even though everyone will be seeking your approval.
Learn the company culture – what is the overall atmosphere and attitude? What motivates your employees? What makes them proud to work at the company? Invest time in getting to know your employees as individuals and reciprocate by letting them know you. Also look for tribal knowledge; who knows the little tweak that’s needed to make a quirky machine work correctly? Who knows where the printer toner is kept? Your dependable, stable employees in any role are extremely important.
Meet customers: Ideally, the former owner will introduce you to key customers or clients as part of the transition. Realize you will need to build trust by ensuring a seamless continuation of service. After proving that, sincerely engage customers in conversations to learn what they value about your company, as well as what changes they would like. You may not be able to make all their dreams come true, but knowing their realistic concerns/suggestions is crucial. This is also an opportunity to find out about related needs or pain points that your company may be able to solve.
Examine the competition: Research what your competitors do well and where they are lacking. Customer reviews are widely accessible now and will highlight real-life examples. Industry peers outside of your geographic area or demographic might have a unique approach or product that is being overlooked in your area. Search for specialties or niches that are not being met in the industry. Remember to include your key employees’ input when considering the realities of expanding your offerings.
Build a team of advisors: You will be very busy (even without an owner-dependent business). Focus your energy on your strengths; identify your weaknesses and hire professionals to help. An accountant/bookkeeper is essential to analyze quarterly financial reports, offer insight to trends, keep an eye on corporate structure issues, and manage tax regulations and considerations. A financial planner can create plans to protect your family and estate. Establish a relationship with a corporate attorney so you aren’t caught off guard when needed. Presumably, you’ll have already established a business banker relationship while buying the business.
Taking the reins of an existing business works best with a healthy dose of humility, curiosity and openness. Building relationships, appreciating experience, and establishing trust will gain a new owner respect, loyalty, and success.
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue of up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com.