5 steps to buying a business

It’s a harsh reality that a lot of your competitors and trading partners will not be around in a year’s time. Probably 6 months is a bit more accurate. The ‘return to work’ is going to be very difficult for a lot of businesses. The financial pressures of getting back up and running will prove too much.

Without being ghoulish this is a moment of opportunity. If your business is sound, leading consolidation in your sector, might be a really good way to accelerate your way out of Covid-19 and beyond into what will be a new reality. 2021, with a vaccine in place, will see markets rebound quickly as confidence that it is safe to do normal things returns.

Fine words, but the vast majority of people running businesses have never actually bought or sold a business. They very likely have talked about it, thought about it but in truth they are M&A virgins.

This is well understood by a lot of the ‘professional advisers’ operating in this area. They have developed a language all of their own full of acronyms and abbreviations that mask what is fundamentally a straight forward process.

In very simple terms it looks like this:

Step 1

It starts with you identifying an opportunity. An acquisition that excites you. You can see how adding that to your business makes loads of sense. You can do this by normal industry intelligence or by engaging proactively in a structured search (there are people who do this for a living).

Step 2

Then it gets tricky. Do you approach them directly or do you get an intermediary to get the ball rolling. Egos and pride might play a big part in this and early stage conversations can be difficult. But you cannot be in the shadows for long. Fairly quickly you will need to engage so that you can confirm the opportunity is as attractive as you thought and that a deal that can work is possible. You will obviously have to sign confidentiality agreements (NDA – in the jargon) and ultimately you want to get to a written form of the fundamentals of the agreed deal (HOA/HOT – more jargon). Without in black and white there is a very high risk of misunderstanding and the deal not completing. At this point you can start planning where the money is coming from. You know how much you will need and when.

Step 3

Now you need to do your homework. It’s called Due Diligence for a reason. In a world of ‘buyer beware’ it’s your responsibility to ask the right questions so you can be sure of what you are buying. This covers every aspect of the business, financial, legal, customers, products, services, IP, people suppliers, systems, premises, equipment – you name it. Before you buy it know what you are getting for your money. Don’t be frightened to walk away. If you find something out in Due Diligence that is not to your liking then be grateful the process stopped you making a mistake!

Step 4

Often running alongside the last parts of Due Diligence is the legal contract. You will need a solicitor experienced in this kind of work. More jargon – the SPA (Share Purchase Agreement) or APA (Asset Purchase Agreement) will be the meaty part of it but there will be other important documents like the Disclosure Letter (proof of what they told you in Due Diligence in case it’s not true!) and some financial stuff depending on how the deal is being funded. Once you have finished the Due Diligence and the legals and funds are in place the deal can complete. But the work is just beginning…….

Step 5

You bought it for a reason. You are going to do stuff with it and that starts now. Clearly there are some really sensitive areas like the team, the customers and other trading partners that need to be treated with respect. This phase passes best if you have thought it all through in advance and can mobilise your resources.

This is a very succinct outline and every deal will be different. Add to that the emotions and stresses on both sides of the deal it can get more difficult quickly.

Our advice is to do 2 things.

First have a really good plan. Know exactly why you are buying this business. Which, will include, ultimately, what you are prepared to pay for it.

Second, if you have not done this before, get somebody on your team who has. It is straight forward but the devil is in the detail very often and experience tells you where to look.

We recently sold our HR Business and are currently looking at acquisition targets in different service sectors. We are not M&A virgins. We know how this works.

The New Normal??

 Like a lot of business owners I have seen a lot of high falluting tosh about ‘The new Normal’, and ‘life after Lockdown’.

It’s landing uninvited in my inbox and my Linkedin feeds.

Probably well meaning but certainly trying to sell me something. Wrapped up in a lot of self indulgent jargon is a lot of the ‘bleeding obvious’.

I have managed businesses through recessions and sudden economic shocks. I have turned businesses around and I have built businesses.

Covid19 is different

It’s impacts have proved to be unexpected in many ways. And yet, whilst in some cases extreme, the effect on business is pretty basic. Your business has either prospered in these new conditions, bumbled along in some form of hibernation or is fundamentally at risk of collapse with your markets having disappeared, albeit temporarily we hope.

Whichever is your reality the next phase of this challenge will largely be driven by your people and how they will respond to unfolding events, both at home and in your business.

True, as the business leader, you will set the direction and drive the pace. But that will not be enough, which is not new, and it never was. Your team’s readiness to engage is at the heart of how things will turn out.

But, if they are returning from furlough they are going to be at best rusty. If you have been running a skeleton staff or running at full pelt they are likely to be very tired. All of this is complicated by disrupted situations at home, be that child care, shielding or illness. On top of that is the ever present nervousness around the risks of catching the virus.

So, fundamentally, the challenge as the leader is to give them new energy and new focus. You may already have your new business plan. If you don’t then create one – the team need to understand where you are taking them. But a plan is not enough. You need to make it real. Your team need to believe it, share it and recognise their individual part in it. This is not new. It’s just much more urgent right now.

There are well established methodologies for creating a business plan and rolling it out. Covid19 does not render them ineffective. The urgency probably means you might need help putting it together and engaging your team.

In my experience you can really do this as an SME in a small number of days if you know how to. The processes are not complex but they do benefit from independent, focused support from people who know how to do it.

Reinvigorating your time as we move into increased return to work could well be the difference that it’s going to take.