A lot of has happened in the world of transactions since 2019, notably because there’s a lot of money flowing in business right now. Are you considering buying or selling a business? In this article we explore some crucial aspects to consider when buying a business, and what a business should straighten out before preparing to sell.
The Importance of Reporting when Buying or Selling a Business
Any good company likes to show profit and a consistent revenue stream, and many of us have basic profit and loss statements or some general spreadsheets we occasionally review. When it comes to transactions, this just isn’t enough. At ProCFO Partners we had two transactions recently where, in the first case, financial information couldn’t be verified because they had no balance sheet. In the second case, the company had two sets of financial statements, one for expenses and annual statements for revenue. These aren’t unique scenarios – many businesses have a reporting status quo that they think works for them, but incomplete numbers can dramatically impact the value of a company.
As a seller, your accurate financial statements easily articulate your value and give you negotiating leverage, making it more likely you’ll get top dollar from a buyer. As a buyer, the lack of complete and accurate financial statements from a seller gives you leverage to pay less or dictate terms.
On the other hand, as a buyer an incomplete financial picture can encourage hesitancy – what else might not be so obvious about this potential acquisition? What other unknowns might not show themselves until after the deal is done? This can shake confidence or stop a deal altogether. Everybody loses. Let’s look a little more closely at some of these possible factors.
Personnel Considerations When Buying or Selling A Business
Culture is key to the success of any organization, and a transaction can put culture into the spotlight. Especially key to culture are the employees, and in a transaction it’s useful to think about three categories of employees:
Sales: The lifeblood of a company, and those with direct impact and connection on the customer.
IT and technical staff: Manage the data, systems and processes that keep a business running.
Administrative: Those who keep all systems running, including managing billing and invoicing, hiring, operations, etc.
On both sides of a transaction, buyer and seller want to make sure these people are aligned and inspired – the ability to do this can make or break a deal. Get to know new staff. Encourage relationship building, understanding personalities, and what makes each other tick.
Systems and Processes When Buying or Selling a Business
Besides culture and people, how stuff gets done in a business is another key consideration. No surprise – this should start with sound financial reporting!
Other key processes to consider include:
Communication: Both internal and external. How do people talk to one another? How do the customers talk to the people? Many companies have informal communications, like Slack or messaging. Some have expectations for evenings and weekends. Work this out in advance so there aren’t sudden hiccups, especially for customers.
Software and platforms: If an acquiring company uses one CRM and the business being acquired uses something totally different, how will you mitigate this so there’s no slowdown? What about billing and invoicing, accounting, or project management? Again, investigate these questions before buying or selling a business to avoid slow-downs or frustrated employees.
Digital assets: Often overlooked when buying or selling a business are details like websites, social media channels, passwords and other digital assets. Make sure the right people have access to platforms, that web hosting is managed and even that a consistent brand voice is applied to socials media.
Avoid Overwhem! You can do this!
It can feel intimidating when you get under the surface and look more closely at aspects like these when buying or selling a business. It doesn’t have to be. Surround yourself with experienced partners that can help you conduct analysis and ask the right questions. Be patient with yourself, others, and the processes involved that can sometimes be complex. And when the right opportunity presents itself for a transaction, be ready to make the most of it.