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ASK Priority: Things To Ask Before You Close the Deal

Posted on Saturday, March 11th, 2006 by


Q.
Things To Ask Before You Close the Deal
What advice would you give to a prospective buyer of a business who is currently managing the business and plans to buy the business from the current owner?

And what advice would you give as to dealing with the current owner who is having a negative influence and impact on existing employees? —GE, Harrisburg, PA

A.
As the current manager of the business, you have the advantage of having an intimate knowledge of the business’s operations, customers and employees. That gives you a definite edge in terms of deciding whether or not the business is worth buying and assessing its reasonable market value. Your understanding of the business’s day-to-day operations will doubtless make any ownership transition relatively smooth since the key employees already know you. However, you must keep in mind that even as a manager you may not necessarily be privy to all of the company secrets, and thus you should approach the purchase with the same concerns as a prospective buyer unacquainted with the firm’s management. When entering into sale negotiations with the owner, you should closely inquire about any contractual arrangements or financial obligations the business may be under. Due diligence should also be performed to make certain that the business and its property doesn’t have any outstanding liens or debts against it.

You should also inquire with key employees and customers during the sales negotiation period to make certain they will choose to remain with the business once the current owner has departed. The defection of critical staff and primary customers can make for an unwelcome surprise once the sale has been finalized.

Additionally, you may wish to negotiate a non-compete contract with the current owner, to make sure he doesn’t set up another business in the same marketplace as the current enterprise, possibly luring customers and staff away from your business.

How you deal with the current owner’s “negative influence” depends on how that influence manifests itself. If the owner is behaving in a fashion that offends or alienates employees, such behavior risks driving valued employees out of the firm, or, worse, possible litigation. As manager of the business, it is your responsibility to communicate any problems to the owner and try to address those issues with him. If, on the other hand, the owner’s negative influence is the result of his or her loss on interest or disengagement from the firm, your acquisition will soon solve that issue.

Q.Strategies With Your Suppliers
I run a small retail store. How can I negotiate better purchasing terms from my product and equipment suppliers? —HL, Tularosa, NM

A.
If it is important to consider selling merchandise to your customers as building a relationship with them, then it is equally important for a small business owner to consider purchasing as forming comparably valuable relationships with your suppliers. Keep in mind that your suppliers have their own pressures and concerns so see if you can address those when negotiating a purchase. For example, many products have a “slow-selling” period. If you know what periods are slow months for your suppliers, you may be able to negotiate a lower purchase price, or more lenient credit terms, for items purchased during this period. By helping the supplier move product during a slow period, you may increase the supplier’s good will toward you and your business.

You should establish a payment system in which payments for purchased supplies are sent so as to be received on time, but scheduled to be sent just as the payments come do. This keeps your cash in your account for as long as possible. Try to avoid late payments, since they will only prove as annoying to your supplier as late payments from your customers are to you. If the supplier offers discounts for early payment, you should avail yourself of the opportunity. Doing so will save money and build up your credit worthiness with the supplier for times when you may need to buy on credit.

When considering discounts offered by suppliers, you should refrain from buying more than you think you will need, even if the discount is particular good, or the credit terms are especially lenient. Purchasing discounts will do you little good if you end up with more product than you can sell.

It is useful to cultivate as diverse an array of suppliers as possible in order to obtain the best prices and terms, and to protect against the sudden loss of a supplier.

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