Assembling the Team
Whether your decision is to buy or build a business, you will find that it’s not something you can do entirely on your own. Often a prospective buyer is anxious about spending money before they have a done deal, not wanting to spend money just to eliminate prospective purchase opportunities. Except perhaps in the rare circumstance where the buyer is a very experienced acquirer in the particular industry, and the sale is a fire sale, it is essential that the buyer perform due diligence to avoid a bad buy, overpaying for a business, or avoiding undue future exposure to liability. I liken this to the process of buying a home.
A buyer of a new home wants an appraiser to compare the attributes of the property to like properties and advise them as to what a fair price would be. Additionally, the buyer will obtain property inspections, pest reports, well tests and other information from independent third parties who are experts in the particular area being investigated.
A business owner is taking on much more uncertainty and exposure to risk than the typical homebuyer, and will want to investigate appropriately as a result. To some degree, the degree and cost of due diligence should be in proportion to the cost and prospective income stream. However, certain due diligence is warranted in any case.
In an acquisition, the negotiation process between buyer and seller is rarely conducted on a level playing field. One or the other often has more experience with the process, and perhaps takes fuller advantage of the knowledge of experts at key steps in the process.
Not every purchase involves every kind of expert listed here, and some may involve others not listed, who have specialized knowledge in the industry or related to the particular circumstances. However, it is beneficial to consider including at least several of these to assist you with the various steps in identifying a business, negotiating a deal, and conducting due diligence, among other tasks. Most people buying a business either don’t have the time, or the particular expertise, to handle all of the aspects of a purchase alone.
A well-chosen team of individuals who contribute to the process will help produce a more satisfactory result in the form of either a reduced purchase price, better terms, or better protection from future problems.
Additionally, not all the players need to be involved at each step. A buyer is well advised to determine a point person, who can keep the process moving, and identify and collaborate with other experts as needed throughout the process. They may also be able to serve as a more objective third party for the buyer, who is likely to invest emotionally at some point and may need that calm voice of reason.