Buying a Business: When Change is Bad
30 May 2022: Buying a Business: When Change is Bad
Are you thinking about buying a business?
We get contacted all the time by people and firms that are looking for certain types of businesses. Some of them have experience but others don’t. Oftentimes, when dealing with the latter, signs of potential disaster appear fairly early. And one of those signs is when we start hearing about what the buyer wants to change.
Now, changing how a profitable business operates is not necessarily a bad thing. Fresh eyes can generate new ideas and new ideas can generate higher revenue. But change for change’s sake is generally not a very good approach.
If you’re buying a business, here’s a three-step process to consider when contemplating making changes.
Well, THAT was pretty succinct! Don’t change?!?
But it’s true. Unless there is something so obviously wrong with the business as to cause immediate problems – such as product walking out the back door or exposed wiring hanging from the ceiling – don’t change anything, at least for a few months. If you have some changes in mind, ask yourself if they are so critical to the health and safety of the business or its employees that they must be done immediately.
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Such a situation is unlikely so it would be better to wait a few months. Get a good understanding of the business so that you can better determine if the changes you’re considering will actually generate positive results; higher revenue.
Watch and Learn
Do you know what makes your target business work? If not, you should.
Every business is different, even those in the same industry.
For example people think that all QSR restaurants are basically the same operationally. But they aren’t. Each owner, even if the restaurant is a franchise, has certain routines or schedules. And there are probably specifi reason for each. Each facility a certain personality and unique quirks. Watch, listen and learn about all this before jumping aboard and clearing the decks.
It doesn’t matter if you’ve had prior experience running a similar business. Don’t think you know everything.
Ask questions, watch how things are done and listen to the employees – both when they’re talking to you and talking among themselves – possibly about you.
In my businesses over the past 35 years, my people often came up with some brilliant ways to improve an aspect of how we’d been doing things. The employees know. They’ve been in the trenches.
You don’t want to make changes willy-nilly. Think through any potential risks that any change might entail.
For example, the buyer of one public-facing business, in an effort to reduce expenses, halted the previous owner’s community involvement program. The business stopped sponsoring a Little League team, a film festival and a local girls club. He even cancelled Chamber of Commerce membership.
And he couldn’t understand why sales fell.
Learn what’s working and really think about how changing that might impact the overall business.
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Don’t Miss Out on the Coming “Silver Tsunami”!
A retail business that has been one of our clients – and one that my family has patronized for years – was recently sold. The new owners able to keep the sale relatively confidential for about 60 days; no name change, no press release.
Some customers noticed a few new faces but there were some familiar faces, as well, and no alarms were raised. but word eventually got out and the local Font of Knowledge did a front page story on the change of ownership of “this landmark institution”. It was only then that the new owners started making some changes – but only those that were specifically designed to make it easier for their customers to spend money there; expanded hours, wider product selection.
Wait at least three months – and preferably six – before marking any serious changes.
You want to have a good feel for all aspects of the business – customers, vendors, employees. You should understand the what the market competition is and how customer demographics may be changing.
The Bottom Line
Being careful about change is even more important in an environment of uncertainty – and with inflation pressures, war, supply problems, rising interest rates and increasing regulatory challenges, we’re in such an uncertain environment now.
Before making changes, make sure you have a good handle on cash flow, all aspects of operations, the competitive terrain, employee responsibilities and performance, and how the changes you’re considering are likely to impact the businesses performance.
Remember the two examples above. One new owner cut expenses without considering the impact on revenue. The other new owner keep a steady hand on the tiller as long as possible.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Well-capitalized uying group seeking E-commerce businesses with revenue of between £1M and £2M and discretionary earnings of at least 10% of revenue located in Europe and the U.K. Preference is the B2C market.
If any of you know of something that might fit, please let me know.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@Wo*******************.com