Buying a business is different than buying a used car. If you act as though it’s the same thing and treat the owner of the business like a used car salesman, you will suffer. That can result in the owner deciding not to sell to you, giving you a worse deal, or not being as helpful to you as he could be after you do buy the business. Here are some important things to keep in mind when you meet with the owner.
You want the owner’s cooperation in your purchase. Almost all owners are proud of their business and want it to continue. They want you to succeed and they can be very helpful to you, the buyer after you buy the business. The owner has important relationships with customers, employees, and vendors that you want to have transferred to you. The owner probably knows the business better than any employee. You may need some seller financing. The owner can be more, or less, helpful in the transition. I’ve seen situations where a buyer leaves such a poor impression with the owner that they refuse to sell the business to them. Here are some tips on how to do your investigation of the business while not offending the owner.
Tread carefully in your first meeting with the owner. Start out by developing rapport. Introduce yourself to the owner. Ask about her background, how she got into the business, why she wants to sell the business now. Ask to take a tour of the business. Owners like to show off their business. During the tour, the owner will be explaining the business and it gives you something to talk about.
Use the sandwich approach. You want to make a good first impression and leave a good impression. Ask your tougher questions in the middle of the meeting. But, be careful how you phrase them. Don’t make it sound like you think the owner is a liar. Ask for “explanations” of things you question. In many cases, the owner may not know the financials well. The business broker may be better at getting you some answers on financial questions.
A buyer-seller meeting is not the place to do your due diligence. While you may do some investigation of the business and its financials before making the offer, to be sure you want to buy the business, due diligence is a normal contingency. This is a period of time during which you review the documentation that supports the financials and investigate other issues that could influence your decision to buy the business. Due diligence is time-consuming to a business owner and they don’t want to take the time to prepare the information until they have a deal under agreement.
Don’t wear out your welcome. You want the first meeting to move along so that everyone doesn’t leave worn out and thinking of it as a negative experience. The first meeting typically takes about an hour to an hour and a half. If you have a long list of questions and you can see that the owner gives long-winded answers which will make the meeting last much longer than two hours, you may want to hold off some questions until the next meeting or ask them of the business broker later.
Find out what the owner does in the business. This is one of the most important pieces of information you need to know. You are going to replace the owner. You need to figure out how you can do so and do it in the way you want. For example, if the owner is working 80 hours a week as the general manager and salesperson, you may need to find someone for one of these jobs if you don’t have the skills to do both or don’t want to work 80 hours a week.
Don’t discuss the price at this meeting. The owner hired the business broker to handle the sale. Talk to the business broker about your offer at another time. Be careful about making a low-ball offer if the business is priced reasonably. This can offend the owner or cause them to believe you are not likely to buy their business. In either case, they may not want to deal with you further.
If you are looking at a good business, it’s likely that there are several other buyers looking at it also. It is also likely the owner knows they have a good business to sell. Keep these tips in mind when you have that first buyer-seller meeting and you will get off to a good start.