Beware: Purchasing a Business Is Purchasing The Brand
If you’re thinking about buying a business, you know it will be in your best interest to retain an attorney and a CPA to audit its contracts, taxes, financial statements and a long list of other things that will either determine the terms of your offer, or make you change your mind altogether. Buying a business – especially one that seems ideal – can be filled with risks as it can be easy for the seller to keep dark secrets hidden just long enough to get the papers signed. I know of one business owner, in particular, who went bankrupt and lost everything because he let too much trust cloud his judgement.
What some attorneys and CPAs fail to mention during this process of considering a purchase is to conduct an adequate amount of research on the company’s brand and culture. A company’s financials may look great and the contracts may seem clean, but an equal amount of due diligence must be performed on the most important component of the business you may be about to acquire – its brand. It may turn out to be the greatest asset you own because it attracts and retains top-performing employees and profitable customer relationships. On the other hand, you could have a huge liability on your hands because it repels potential candidates and prospects.
Early on in the consideration process, ask the seller if you can have an independent third-party perform an audit on the brand. The results of a good audit should provide insights into how the brand is viewed and perceived from the perspectives of employees, customers and strategic business partners. The purpose of the employee brand audit is to identify the strength or weakness of morale, productivity, communication, engagement, understanding of what the brand stands for, and overall advocacy. In this process, you can also ask employees what they believe makes the company successful. The purpose of the customer audit is to determine not only how the brand is perceived, but also the likelihood of getting repeat business. The strategic partner brand audit gives you insights into how well the brand stacks up to the competition and reveal comparable strengths and weaknesses. If the seller seems apprehensive or opposed to any kind of brand audit, you may want to drop everything and walk away unless it is your sole intent to buy the company for the purpose of turning it into a great brand. If the seller encourages the audit, you should feel a lot more confident about what you are getting into.
One of the most effective tactics I use for acquiring a sense of the health and strength of a company’s culture is to ask the owner for a tour of the office and shop floor. I observe how people react to the boss when he or she is approaching their area or space. I pay particular attention to whether or not anyone talks to him or her, smiles, or even says, “Hi.” I’ve been in environments where the atmosphere is friendly and professional, and ones with a lot of uncomfortable tension in the air. Body language and facial expressions tell me nearly everything I need to know about how employees feel about the company and its leadership.
Think of buying a business like you would getting married to the ideal person for you. The only difference is that right after the ceremony, your spouse leaves for good and you must move into a big house to live with your in-laws…or out-laws.