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Buying a business for MSPs. Chapter 6, Qualification. Part A.

Assuming you’re actively, consistently prospecting, sooner or later you’ll start getting leads. You’ll need to process and filter them as efficiently as possible, otherwise your time can simply evaporate, leaving you very little time for anything else. Having established your filters according to your own business criteria, you’re now in a position to start having those initial phone calls. Early on, you’ll need to establish the seller’s price expectations. They will very likely be a first-time seller, and while some people understand what realistic market prices are, many won’t. Things to listen out for over the phone. At this stage, you’re looking to just get a very rough idea of who they are and what they want.

You’ll be discussing sensitive information with people that you’ve never met before, so be polite, respectful, and as reassuring as possible. You don’t want them to have any reason to feel any more awkward than they already do. Even if you decide that you’re not interested, it never does any harm to remain friendly, courteous, respectful and approachable. After all, they may come back with a revised schedule or know someone else looking to sell. Even at this early stage, you may be required to sign a non-disclosure agreement, an NDA, so be prepared for that and check that it contains no onerous terms before signing. Better still, make it your NDA and offer it upfront.

Whilst trying to establish their goals, their reasons for selling, their urgency, and their values, the words they use will be revealing. Use open-ended questions as much as possible, and try and build trust quickly. Rapport is essential and will be instrumental if you proceed to the negotiation stage. It helps if you’re not a closed book, and so you should tell them a bit about yourself and let them understand that you are a human being, not some corporate monster looking to devour a small business. refer to the rapport building section early on in this book. At the initial phone call stage, you’re looking for the following information, who they are and who else is involved, what their business is, just the preliminary details, why they’re interested in potentially selling, when they’re looking to exit, and how much, a rough idea of their expectations.

But don’t get too drawn into this just yet. Please note, due to time constraints, you won’t be able to meet every business owner that expresses an interest in selling, which is why phone filtering session is so important. However, until you’re more polished in this process, it might be a useful exercise to meet a few for discussions face-to-face. Even if it leads to nothing, it’s very useful just for the practice. Obviously, what you’re looking for is a business owner that would be willing to sell you their business at the right price, in the right way. If you can establish a deal where you pay very little upfront and make deferred payments from future profits, then you may well have hit the jackpot. However the business is paid for, its sale price is simply what it’s worth to you and what it’s worth to others, hackneyed as that is. Snap valuing a business. In order to make any decisions, you’ll need some numbers. If the person on the phone doesn’t have that information to hand, it’s not necessarily a problem, But they’ll certainly need to get you those figures before you continue. You’ll need to ask about the financial state of the business. Management accounts are malleable, and cash flow is very different to profit.

So ask to see the bank statements. Remember, you’re looking for a business that can either be fixed, and thus bought cheaply, or which is financially healthy, and you’re buying it for the instant profits. Look for healthy margins, assets, and recurring revenue models. For example, what would the figures look like if 20% were added to costs, or if the sales dropped by 20%, or indeed both? Please note, financial issues can be in a poor state. That doesn’t mean it’s not fixable, and may well provide a reason to require the business cheaply. However, you need to ensure that it is fixable. For example, a business may have a good cash flow and contracts in place. but have poor margins, which could be fixed by increasing prices and service, or reducing overheads. However, if market forces determine that the margins cannot be improved, then you can’t fix it, so walk away. By way of another example, if the business has no assets, then you will have a much harder job to raise funds against the business, so you’ll have to use your own money to invest, and clients could just walk away post-purchase, so please be careful.

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.