The 12 Step Blueprint
The best places to look for the sort of businesses depend upon your strategy. You need a quick assessment tool to decide whether the deal is worth looking at. And you need to be organised as you might be looking at a dozen deals at any one time. Then there’s signing NDA’s and dealing with brokers v dealing directly with the seller. But you need to know the truth about business brokers – many don’t care whether they sell you the business or not!
We have a script for making the first approach so that you sound like you have been doing this your entire life!
When you meet your target for the first time, you need to have a set of questions to ask, and you must be prepared to answer questions too. This first meeting and the rapport you build is key to the successes of the deal. If the current owner doesn’t like you or believe that you can make a success of the company, you won’t be able to buy it. If all goes well at the initial meeting, there’s a follow-up meeting where you take the conversation to the next level, and you start to learn the truth about the business.
This is where you value the business, negotiate and structure the deal, so you don’t have to put any of your cash into it. Here’s the thing, the seller always has a very different idea of value to the buyer! Bringing those numbers together is the key to the negotiation, and there are some simple rules to follow that make this painless. You will either pay something upfront (remember, you won’t be using your money) or nothing upfront. Getting this structure right is essential. You might, for example, buy 80% of the company and keep the owner in place to run it, or instead, offer the management a share in return for contributing to the company’s success.
You need to forensically examine every aspect of the business so you can understand exactly what you are buying, where the liabilities are and how to protect against them. This is also your opportunity to put together the plan that needs to be implemented once you own the company. You need to pay particular attention to any tax issues, staff issues and who owns the company’s assets. Every problem you discover can be solved—you just need to find them!
You close the deal by getting the legalities in place. It’s essential that you use an experienced M & A lawyer who is used to working on deals of this size. There are many things to consider such as seller non-competes (where you limit the seller from competing with you for a period of time) and warranties that protect you from the seller not telling you the whole truth! If the business is distressed, you might be doing a pre-pack administration as part of the completion where you buy the assets from the Administrator and can rid yourself of the seller’s debts.
Now you own one business you can start building your portfolio. You have several choices:
Buy completely unconnected businesses but benefit from cost reductions in shared offices, admin, finance, HR, marketing, etc.
Buy very similar businesses and roll them up into one business.
Buy businesses with the same customer base and cross-sell. For example, you might have a business that sells to the over-65s. You can then share the data base and sell other products and services to those customers.