Although many people have great hopes for growth when buying a business, more important is to be certain that the company can, at least in the near-term, remain stable.

In keeping with this, a major concern for prospective business buyers, and rightfully so, is the question of whether or not the business can succeed under new ownership. Any buyer, who does not have this as their top priority when analyzing a business for sale, needs to adjust their thinking.

It is critically important that buyers match their best skill to a business that requires that specific expertise to not only transition to new ownership, but to thrive in the future.

Since most small business sales involve a seller exiting and the buyer basically filling their role, the matching of skills to the business is obviously the most important criteria.

During the analysis stage of the business buying process, understanding why customers buy from the business is a crucial factor a new potential owner must analyze if they are to effectively determine whether or not the business will transition well to them after a sale

. Certainly, there are many cases where the seller is “the business” but that does not necessarily mean they cannot be replaced and quite often, the owner’s impact is overestimated by potential buyers. Unless a seller has deep personal relationships with clients and or suppliers that cannot be transferred, the answer to why customers buy is almost always related to the company’s products, services or location. By simply continuing to provide the same products, services and support, most businesses will continue to enjoy the same results after a sale as they did immediately before (another reason why buyers must almost never make any drastic changes immediately after a sale but that is a subject for another article).

While I would never suggest discounting the seller’s impact on a business, a closer and more objective look at the real factors generally reveals that they can be replaced.

As such, the question every buyer must address is whether or not they can sustain the business after the seller leaves. This is especially critical in the near-term. It is common for a business to go through a short-term decline after it changes hands and similarly, it would be easy for a new owner to panic and second-guess their decision. Usually, this dip is more a result of a new owner’s ramping up period than it is a measure of the business’ actual viability.

It is incumbent upon a buyer to visualize what life will look like after they complete the purchase and how they will operate without the seller.

I have long believed that if a buyer feels the former owner has to remain on board for a lengthy period after a sale (i.e. more than a few months), it is likely that the buyer isn’t suited for the business. One exercise I suggest buyers conduct is to determine what would happen if the seller got hit by a Pepsi truck shortly after the sale. If the business would, in their mind, immediately deteriorate without the ability to resurrect it, then it’s not for them.

Interestingly enough, most new business owners will state that within a month or two or taking over, they are surprised how easily they have assumed the former owner’s role and how comfortable and confident they are operating the business. It is the old adage of fearing the unknown.

In summary, it is certainly understandable for a prospective buyer to be concerned about taking over a business, and they should be.

That concern, if channeled in the right way, will force a buyer to conduct the most thorough pre sale review possible. Every buyer needs to understand that there is always going to be some level of uncertainty going into the deal. But, when you understand precisely what the seller does everyday, what truly drives the revenue and profits of the business, and whether or not your skills match what the business needs to transition well and ultimately grow, then most of the other worries are simply normal anxieties that you must learn how to set aside in order to pull the trigger and complete the purchase of any business.

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Richard Parker

Diomo.com – The Business Buyer Resource Center™