You realized your lifelong dream of buying a business and becoming a business owner. If you’ve bought an existing business, you’ve made a wise choice to set you on the path to success. Acquiring a business and developing it requires a solid plan and support. I met with Rich Chinappi, commercial real estate agent and business transition consultant, and he shares some do’s and don’ts for business owners who are considering an acquisition and those who want to sell their business. Employees affected by acquisition can gain useful understanding when they are affected by an ownership transition.
What is the most overlooked aspect of acquiring a new business?
Rich Chinappi – It’s probably the transition period between seller and buyer. A buyer always benefits from an amicable relationship with the previous owner. The previous owner should feel comfortable and needed during the transition. Sellers are usually willing to share their experience from years of operating the business. Buyers gain valuable insights during a successful transition period. New owners need to learn as much as they can from the seller on how the business really operates.
The transition is not the time to bring about major changes. Wait until you feel confident you have a good understanding of the way things were before introducing changes. My advice to new business owners is to allow one year to experience the business operating cycle before making any change unless it is absolutely necessary.
Anne-Lise Gere – A successful transition will be more successful if the staff is involved in the transition. They need to know their jobs are secured (or not) so they know early on what the transition will mean for them. New owners need to spend time with employees to get to know them personally and understand their roles. This should be part of the early “orientation” to the business.
New owners must get payroll done correctly from the start. Learn how the existing payroll is done the first-time payroll is run. Unless the payroll system is obviously broken, don’t change it right away. If it is broken, do your research. See if you can get better service from different vendors. The majority of mid-size businesses outsource their payroll. Many options are available. Talk to your accountant. Get a quote from a national payroll processor and a local payroll processor. Your bank might offer payroll services. Consider total cost and the service of service as you make your decision.
Finally, consider retention bonuses for key employees. This is a fairly easy and not so expensive way to keep employees critical to the early success of your new business. Retention bonuses can also be used when positions will be eliminated but are required for the time of the transition.
What is the first priority of new business owners after buying a business?
Rich Chinappi – Meet the staff. Listen to their suggestions. They may have good ones! Remember employees feel uncomfortable during the transition and can be unsure of what the future holds for them with a new owner at the helm. They might start looking for a new position elsewhere. Let employees know they are needed now and in the future. After all, they are part of the asset you just bought. Don’t run them off. Be appreciative and complimentary. Right now, there are more job openings than people available to work. This challenge crosses all industry lines.
Anne-Lise Gere – Communication with employees during the transition is key. If the new owner is not visible and communicative, the void will be filled with rumors. Don’t assume employees know or understand what’s going on. Have a consistent message and share it more than you think is necessary. Meet the staff on a regular basis. Most importantly, meet with every employee one-on-one. Get to know them personally. Tell them about you. This should be a two-way conversation. Avoid talking about business during the first individual meeting. The focus should be on getting to know each other to create trust and goodwill.
What type of questions should the new owner ask the previous owner?
Rich Chinappi – The pandemic has changed a number of consumption habits. Research how this may affect your business and how others have successfully responded to the changes.As a buyer, have a list of questions ready for the previous owner. Let the seller share their knowledge by asking open-ended questions.
Don’t spend too much time telling the previous owners how you are going to change the business. This might put them on the defensive, especially if they have financed a portion of the sales.
However, test some ideas for improving operations and profitability by asking the previous owner if they had thought about trying those ideas. You may find they did. Now, you have saved yourself from a possible expensive mistake if those ideas didn’t work and you understand why they didn’t work. Even good ideas poorly executed or timed wrong will fail!
Anne-Lise Gere – Before you even meet the employees, get an overview of the workforce from the former owner. Ask questions about the workforce you are acquiring. Who are the key players? Who are the “problem children”? What’s the tenure of each employee? Who is classified as exempt? Understand the employee training requirements for each position if your business is regulated.
Inquire about any systems in place to manage employees such as time and attendance, billing and payroll, onboarding of new hires. Make sure you contact all the vendors (e.g., payroll, benefit broker, insurance) and professional support (e.g. CPA, Attorney, HR consultant).
How should the transition be communicated with clients or customers?
Rich Chinappi – You want a seamless transition so customers don’t know the business is under new ownership. Perceived negative changes raise huge red flags for customers. They start asking employees questions about the business ownership. This is another reason to have a happy and content staff. You want the staff to say “Yes, we do have a new owner and it is a positive change.”
A final recommendation when buying a business?
Anne-Lise Gere – In industries with high employee turnover, recruiting and keeping good employees is a constant struggle for business owners. Make sure you have a good recruiting process for the start. Know where your best employees came from. Those are your best recruiting sources. Establish a process for selecting candidates and stick to it every time you recruit. Just consider how time-consuming managing problem employees can be. I recommend conducting background checks before any new hire starts, especially for management positions and in positions handling funds.
Regardless of industry, the new owner should affirm the basic rules of work such as time, attendance and discipline. As we emerge from the pandemic many businesses have evolved towards a hybrid workplace. Consider your position on hybrid workplace and remote work. Be clear on how this will affect retention, operations and recruitment.
When a business transition is successful, the change in ownership is perceived positively by the staff and will go unnoticed by customers. Positive changes are always appreciated by the customers and that makes them more resilient to some negative changes like price increases that may come in the future.
Rich A, Chinappi is a commercial real estate agent and businessman.
He can be reached at 757-617-3237.