Ask Andi: Check out every angle before buying another business

A colleague asked if I was interested in buying her company. My curiosity is piqued, but I”™m not sure. She says she wants to keep working to help ensure a successful transition and to have income for the next few years. While I”™d be open to doing an acquisition, I”™m also worried: If she came to work for us what opportunity is there for her to make a living? My gut says she”™s considering selling because she can”™t make enough money on her own. I don”™t want to solve her need for income and leave my company on the short end of the stick. Suggestions?

THOUGHTS OF THE DAY: Make sure you know what this business does for your company. Negotiate until you”™re both clear as to the role the seller will play in your company. Think about how easy or difficult it would be to take on the business. Can you make money by doing the deal?

What would your company gain by adding to its portfolio? More clients? A new business line? Technical skills? Personnel? How is the industry doing overall ”” and is this a sector that you need to invest in, in order to grow?

It”™s not all about revenue. Consider whether you want her clients. They need to be as or more profitable as compared with your current clients. They need to be easy and loyal enough to manage that you don”™t spend all your profits on concessions and support just to hang onto them.

In a low unemployment economy, picking up personnel and technical skills can have a great deal of value. How skilled are the seller”™s employees ”” do you want all of them or just a few gems? Reflect on your company”™s culture ”” make sure any new personnel will fit in. Think about the personnel gaps in your company and nose around to see if her employees could shore things up.

How likely is it that her employees will stick around? Once competitors find out the company is in play, employees will be getting calls. If you”™re moving locations from the seller”™s shop to yours, the commute could impact who stays or goes. What would pay be like at your company ”” more, less or the same as what her employees are making now? Any increases to get to parity, whether it”™s her employees or yours, will impact your bottom line.

Figure out the role you want the seller to play in your company and whether she”™s doing that now in her own company. Keep in mind that if she can”™t make enough to live on running her own shop, how will she make enough once she”™s part of yours? Her best opportunity to make money will probably be in client-facing jobs: sales, account management, technical adviser. Functions such as accounting, production and even marketing need to be handled by less expensive personnel and blended in with roles already in existence in your company.

Do your homework. Find out everything you can about the seller”™s business, the industry and the owner. Check out her work. Make a sales call on some of her better-known customers. Take a look at reputation and positioning on the internet. Go to a trade show for the industry to get information on overall trends as well as to gather information on her company.

Figure out how you turn this opportunity into a moneymaker before you make an offer. Consider paying out over time, as a percentage of profit, if she”™s open to it ”” probably her best shot at making money from the sale. Don”™t be afraid to walk away if she makes deal-breaker requests.

LOOKING FOR A GOOD BOOK? Try “The Complete Guide to Selling a Business” by Fred S. Steingold.

Andi Gray is president of Strategy Leaders Inc., StrategyLeaders.com, a business consulting firm that teaches companies how to double revenue and triple profits in repetitive growth cycles. Have a question for AskAndi? Wondering how Strategy Leaders can help your business thrive? Call or email for a free consultation and diagnostics: 877-238-3535, AskAndi@StrategyLeaders.com. Check out our library of business advice articles: AskAndi.com.