Buying a small business: how to avoid the big mistake

That picture may come close to the truth for some large companies, but it rarely does for small ones. Selling or buying a small business involves more complex dynamics, in which the human element plays a major part.

For the owner of a small business, the sale is rarely a straightforward financial transaction in which he expects money in exchange for his shares. Other things come into play, as much objective as emotional. What will become of the staff? Will customers get the same service? Will the company’s name survive? Will the prospective buyer be up to it?

Many negotiations fail because would-be buyers are unaware of this dimension, or don’t know how to take it into account. Here are a few pointers for avoiding the crude mistakes.

It is above all a human deal

The prospective buyer has to win the seller over. He has to make him want to entrust him with his company, want to make him his heir or his successor. And it is up to the buyer to manage the relationship through the negotiation, and to take whatever initiatives are needed for that courtship to succeed and to hold.

Find out what the seller really wants

To carry that campaign off, you have to understand what the seller is looking for and what matters to him. Don’t settle for what he says: dig behind it to understand what is really driving him. What is important to him? What is non-negotiable, and what could become a sticking point?

Identify the hidden decision-makers

The entrepreneur will often have built his company at the expense of his private life, and will have managed it thanks to the support of a spouse who is not in the business but is ever-present in its decisions. Or there is a father or mother still alive who must not be disappointed. Brothers and sisters expecting something from the sale. Or even an accountant or an adviser whose opinion carries particular weight.

Working out whether there are hidden decision-makers will let you handle the negotiation better, and make it simpler.

Reassure him about the company’s future

The company is, in a way, his baby. He will prefer to hand it to whoever he believes most capable of securing its future. Remember that you are very likely to have competition, and think about proving that you have the required skills. Not in the abstract — the ones the seller considers necessary.

Get him talking

As a rule, get the seller to tell you about his company. Its successes and its failures. How he contributed to them, through which skills or which talents. And show yourself respectful of his history and keen to learn from his experience.

This is not always necessary, but it will always help.

Nady Bilani