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Buying a business for MSPs. Chapter 10.

Buy it and fix it. If the due diligence process has highlighted irreconcilable problems, or you simply don’t feel right about the deal at this point, and try to differentiate between simple nerves and a more sinister gut feeling that something’s not right, then obviously you won’t proceed. If the due diligence has shown that the deal would have been viable, but the numbers weren’t as good as you’d originally anticipated, then you can show your findings to the existing owner and see if it can be renegotiated so that it can be made to work for you. Can you work with a seller? If not, the numbers may be meaningless. If you’ve got this far and the due diligence was okay, i.e. you’ve negotiated, agreed a price and terms, and you have the finance arranged or can get it, then you’re now in a position to go ahead. Signing papers, ensuring everyone is present that needs to sign, transferring titles, et cetera, is obviously best left to the lawyers.

However, it won’t be them that’s responsible for making the business turn a profit, so you’ll need to refer back to the section outlining different ways you can add value to a business and/or cut costs from it, and have an action plan to implement this.

So the immediate things to do. Do the deal signing early for any last minute changes whilst everyone is still available. Sign the contracts after any amendments. Ensure the titles to all assets have been transferred and check stock if appropriate. Change passwords for key areas, for example the CRM, the ERP, bank accounts, e-mail accounts, etc. Get the paperwork ready to prove you now own the company to staff, banks, suppliers and customers. Make sure the bank accepts you as the new owner ASAP. Request new credit card numbers and cancel the old ones. Announce the news to key people, a bit more on this below. No matter how smoothly you transition everything, and how well you market and manage your newly acquired business, there will be general disruption and fear which you’ll need to try and mitigate. So confidence, operations and revenue.

The first quarter is the hardest. and it’s essential to maintain confidence throughout the business, managing the change of operations, and ensure revenue doesn’t drop. Some people say that you can expect revenue to drop for the first six months, and perhaps you can take consolation from that if it does happen. However, this certainly doesn’t mean you should take it as a hard and fast rule, and indeed, I’d avoid accepting it as a norm and instead aim to increase revenue. Confidence is all about communications. Remember from section one of this book, your market, your messages, and the media. The markets will be staff, clients, suppliers, and other stakeholders, including the previous owner. So the messages for staff. Firstly, they might not even know anything about the change of ownership, depending on how the transfer process was conducted. Have something prepared to communicate to them. If they already know there’s been a transfer of ownership, you’ll need to reassure them if they’re staying, or let them go if they’re not. Meet with top management first to give them your good news or the bad news accordingly. They’ll need to understand how their transition is being implemented and what they’re expected to do with themselves and to the people under their charge. This is the time to share your vision and expectations. Later, after you’ve made a general announcement to the rest of the business, you’ll need to meet with management again to assign or confirm goals, responsibilities, boundaries and so on. You need to set the tone at this point, you won’t get a second chance to make a first impression and confirm job descriptions for everyone in the organisational chart, including your own. Messages for your customers. A good tip is to imagine your customers as your boss. What would they ask you to do? Interview them, find out what they want, let them know you want to give them great value. What’s your new pricing strategy? This communicates your positioning. Go back to old customers and tell them it’s under new management. Messages for suppliers. For the outside world, you can run a press release ensuring you frame everything in the positive.

After all, it’s great news. Apart from your staff and clients, your suppliers will want reassurance, especially the ones where the business has run a credit balance. You have different options here. You can reassure them that you’re the good guy and that their credit with you is safe and they should continue doing business with you. If the business was stressed, you can request a payment holiday or better terms. For those other suppliers where you don’t owe them anything of any significance, it’s an opportunity for them to prove themselves to you. As this text is largely geared towards small business owners that already own a business, there will probably be some duplication at this point in terms of provision of suppliers and or services. De-duplication is one way you can make the acquired business more efficient, meaning that the supplier allowed to remain should be based on merit.

However, this doesn’t take into account any social capital you’ve invested in your recumbent supplier, and there is a case for keeping a diversity of suppliers. Nonetheless, this can be an ideal time to create a little competition between suppliers, or, at the very least, revisit agreements you’ve already got in place and see if you can negotiate better terms. If the previous owner is still working in the business, either as a temporary consultant or as a long-term employee, then technically there’ll be a supplier now as well. You’ll likely need to treat them with kid gloves and, depending on how they’re coping, you may need to give them some slack. After all, they’re used to being the entrepreneur, not an employee. It is very possible you may need to politely, but firmly, set boundaries to their authority. They may even be experiencing seller’s remorse and the environment or your relationship with them can become awkward if not handled carefully. As already mentioned, for one reason or another, they often don’t stay around very long. Now, to fix the business. Review the section earlier about how to add value and/or cut costs. List out what you need to do to prioritise it in some kind of action plan. Use the good old 80/20 thinking and prioritise.

Here are some quick ways of cutting expenditure. Review all the expenditure. Review all monies going out of the bank accounts, especially direct debits and other automated payments. Review and restrict who has authority for payments and purchasing. reduce the headcount if practical, de-duplicate suppliers, get better terms from suppliers and/or shop around, leverage goodwill from suppliers, for example, get free rent for a few months, extend creditor days, sell or rent out assets that aren’t being used effectively, and implement organisational efficiencies.

Some quick ways of increasing revenue: get cash in from customers and debtors, remove admin delays so all invoices are sent out immediately, Increase prices. Leverage all your required and existing clients to upsell, downsell, and cross-sell. Have a special event to promote sales. Contact lost clients. Energise the sales department. Give ambitious targets and contingent bonuses. Ramp up marketing, starting with no-cost, low-cost methods (for example, joint venturing and referrals).

Then, rinse and repeat. If you’ve made it this far and survived, why not strive to have a portfolio of several businesses? With synergy, the value derived from the whole is more than the sum of the parts. Each business can complement and strengthen the others. Alternatively, consider consolidating several businesses into one and streamlining them for super-efficiency. Perhaps a combination of diversification and consolidation would be best. The sky’s the limit! Depending on your personality, you might find it more fun than working. If everything has gone to plan, you’ll have acquired a business, increased its value, and can now sell it, flip for significantly more than you bought it for, or enjoy the ongoing profits. Congratulations! As a recap, hopefully you should have picked up these main points from Section 2. Company growth, i.e. your wealth, by acquisition is quicker than organic growth. Lots of people will sell their businesses if approached.

You don’t have to buy the risk. You can just buy the assets. You can buy now and pay later. You’re not limited to your own money. Capital is everywhere. Develop your power team, your legal, financial, and broker. Have multiple options. Build pipelines of deals and funds. And be vigilant. Things can and do go wrong. Get good at due diligence. Practice dummy deals to build up confidence and experience. Add value and/or cut costs to maximise profits. Rinse, repeat to build up your portfolio. And finally, thank you. That’s it. Onwards and upwards. We hope to have provided at least a few nuggets that you can use for your future business journey. So, if you’ve had some value, please tell others, and if not, keep quiet, but tell us. Should you want to get in touch, there’s a contact form at www.ca michaelknight.co.uk. Good luck.

MSP Marketing in bite-sized bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www.MKLINK.org.