When acquiring a small business, we recommend a more nuanced approach that contemplates matters beyond cost analysis and dollars and sense.
Small businesses are the engine of American enterprise and continue to play a vital role in the economy of the United States. According to a 2012 Small Business Administration report, small businesses “produced 46 percent of the private non-farm GDP in 2008 (the most recent year for which the source data are available), compared with 48 percent in 2002.”
Small businesses are also unique in that they engender loyalty from employees who take greater pride in building a business and who are personally invested in the business’s success than if they worked for a larger company. Customers can also be more loyal to smaller businesses for reasons beyond price.
Given the above, here are a few of the important steps involved in purchasing a small business.
- What’s The Plan? When buying a small company, understand the goal of the purchase before initiating any process. Are you buying the business because of its name? Are you interested in its intellectual property? Are you buying the business as a whole? Are you only purchasing the talent? Each scenario comes with its own challenges and steps forward that should be fleshed out with the assistance of an attorney.
- Respect What The Target Company Has Built. Regardless of your target, part of your plan must be to respect what the target company has built in terms of customer base and product. Buyers should honor the existing products or services as well as the customer base. You are, in most cases, acquiring a business because of the good will developed by that business through product development and customer service. If you are to disregard those customers, you may lose them.
- Respect Who Built The Target Company. New team members that remain from the target company will most likely look at the company they’ve created with pride. Failing to respect their achievements will most likely lead to employees feeling undervalued and looking to leave for other opportunities in the job market. Disregarding a target company’s progress will be disheartening for the team that built it – a team you may want to make your team. Get to know your new employees and integrate them accordingly into your business.
- Who Will Stay And Who Will Go? When acquiring a business, having a plan in place regarding which employees and consultants will be retained after a purchase is vital. Establish this plan early on with the seller so the process is as quick and painless as possible for all parties concerned.
*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.
Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.
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