Small Business Today Magazine APR 2015 POSSIBLE MISSIONS | Page 28
EDITORIAL FEATURE
12 Factors that Kill
a Business Acquisition After the Sale – Part 1
BY JEFFREY D. JONES, ASA, CBA, CBI
T
his article is not about cases where the buyer knowingly
purchased a failing business and was not able to successfully turn the business around or change the concept but
rather this article will focus on those transactions where
the business was profitable prior to the sale but failed shortly
thereafter. The following is a review of 12 factors that commonly lead to the failure of a business:
1. Poor purchase price and terms of deal
There are many transactions that take place between sellers and buyers without the involvement of business brokers
such as sellers who sell to an employee or relative. Without
professional help, these types of buyers often agree to a price
and terms that almost guarantees failure. In many cases, the
sellers set the price based on their own needs and then agree
to finance the purchase with a low down payment and a short
term note payout. This results in a high monthly payment that
the buyer cannot pay when business is slow or cash is needed
to handle unexpected repairs. The seller then begins the foreclosure process and the buyer who has very little investment in
the business steals what he can and departs. Seller financing
is often used to finance a business acquisition especially when
the business records are insufficient to meet a third party lender’s requirements. The key to seller financing is for the seller to
get a significant down payment, say 25 percent to 40 percent,
and then a payout that the business can afford to pay. Typically, it takes five years with current interest rates being 6 percent
to get monthly note payments low enough wherein the profitability of the business can afford to pay the buyer a reasonable
salary and the note payments.
2. refuses to develop a relationship with the customers
A business only exists because of its customers. When you
take over the business, the customers do not care that you are
overwhelmed by the workload or that you do not really understand their question. What they care about is that you call
them back within a short time. They need to vent and obtain
some satisfaction for their complaint. However, you do not like
confrontation or unhappy people. Therefore, you do not talk to
them. Within a short time, they will be gone. In addition, with
them goes your opportunity for success. Make two things a
priority: Number 1 - Go see or have a meaningful contact with
every customer within 30 days of purchasing the business and
26 SMALL BUSINESS TODAY MAGAZINE [ APRIL 2015 ]
a business only exists because of its customers. When you
take over the business, the customers do not care that
you are overwhelmed by the workload or that you do not
really understand their question.
Number 2 - Return every phone call within 24 hours or less.
If necessary, make sure your assistant or secretary makes the
return call. Be certain that your new customers know that you
are thinking about them. This is vital and is one of the main
reasons these new business owners fail. They do not understand that operating a business is essentially a people-to-people enterprise. If they fail to develop the relationship with the
customer, the business will fail.
3. replaces key employees
Frequently this action occurs. The new owner takes over and
within a few weeks has a falling out with one or two key employees. They just paid a staggering sum f ܈ H