4 Things New Owners Face After Buying an Operating Business
Purchasing an operating business has its advantages. You have an existing customer base, existing employees, and likely existing inventory as well.
However, as experienced business brokers can tell you, purchasing an operating business comes with its challenges, too. Here’s a look at some of the difficulties you may face right after buying an established company.
1. Assessing Current Employees
Sometimes, purchasing a business with an existing team of employees can be advantageous. They already understand how the business works and can perform daily duties, which means you don’t have to invest time and money into recruitment and training.
However, it’s essential that you evaluate the current team to determine whether the existing employees are good for the business. If your team includes unmotivated employees or those who seem to go against the grain of the culture you’re trying to create, you may be better off dismissing them.
Evaluating the current team can also help you decide whether you need to hire more people to support growing operations. In some cases, you may also determine that you need to downsize.
2. Evaluating Efficiency
Even the most successful businesses can stand to become more efficient. One of the best things you can do right after buying an existing business is to conduct a thorough efficiency audit. The sooner you can start optimizing, the sooner you’re likely to see reduced expenditures and increased profits.
You also may want to track efficiency and growth moving forward. You can often accomplish this by looking at financial records or by periodically using a business valuation calculator to see whether your company’s total value has gone up.
3. Evaluating (and Maybe Overhauling) Technology
Some established businesses may not have updated the technology they’ve used in years. More often than not, updating technology can save you time and money. For example, a lot of newer tech allows you to automate payroll, customer notifications, and other functions.
Of course, incorporating new technology might come with an upfront cost. You can end up paying more in terms of both the money it costs to purchase the tech and the time it takes to train your employees to use it.
4. Evaluating Business Relationships
In addition to other aspects of the existing business, you must also evaluate your relationships with vendors, suppliers, and other companies you may do business with. It’s particularly important to look at competitors to ensure you’re getting quality products for the best price.
Keeping the same partnerships might seem easier. However, if you can find a better deal elsewhere, it’s worth the effort to make a transition.
Buying an Operating Business Can Be Challenging — but Worth It
When you buy an existing business, you have the opportunity to assess it and optimize it accordingly. However, implementing the necessary changes is often more complex than it sounds. The good news is that when you work with experienced business brokers, they can advise you on how to best move forward once the deal is finalized.
Business Brokers Let You Focus on Operations, Not Sales Negotiations
Whether you’re preparing to move on to your next business venture or getting ready to retire altogether, selling your business can be exciting. However, it takes more time, work, and business savvy to negotiate a sale than most people realize.
Business brokers specialize in finding qualified buyers and making sure you get every penny your company is worth. But that’s far from the only benefit they can offer you. Here are several reasons why you can benefit from working with a business broker.
Negotiations Involve More Than You Think
Negotiating a sale price for a business isn’t like haggling over the price of a set of dishes at a yard sale. Typically, negotiations take time and involve several steps, including the following:
Assembling financial information
Having the business appraised
Agreeing on contingencies (like buyer financing or transfer of office lease)
Deciding whether the buyer wishes to keep the same staff on board
Determining “covenants and promises” (like non-compete agreements)
Planning transitions (like vendor contracts or ongoing projects)
If you have experience selling businesses, it may be possible to do so yourself. However, if you’re unfamiliar with the process, the buyer’s business broker may be able to take advantage of you. Business brokers handle sales on a daily basis, and they have the skills needed to build a deal that’s favorable to you.
Successful negotiations start before you even make contact with a buyer. Business brokers are uniquely equipped to appraise your business, assess the market, and decide on a reasonable asking price.
A business valuation calculator can help you get a general idea of what your business is worth. However, for more precise valuations, you must rely on the expertise that brokers can offer.
When You Broker Handles Negotiations, You Have More Time for Your Business
Going through negotiations can be incredibly time-consuming. And if you’re involved in your company’s daily operations, that means you’ll have far less time to attend to your duties. When you’re trying to attract buyers, the last thing you need is a sudden dip in performance or revenue.
Many buyers also ask business owners to make what’s called a “business as usual” promise while the sale is being finalized. That means the current owner must continue offering the same services, inventory, hours, etc. If you’re handling all negotiations, keeping the company functioning normally might be a real challenge.
If maintaining the business during negotiations proves to be difficult enough, the sale itself may be in jeopardy. If this buyer backs out, you’ll have to repeat the entire process again with a new one.
The Right Business Broker Makes All the Difference
A business broker can help you maximize your profits while still giving you enough time to focus on operations. Of course, you should carefully evaluate any business brokers you consider.
It’s particularly important to make sure they have experience with companies in your industry. When you take the time to select the right broker, you’re making an investment in the success of your future sale.