“When I started here 2 years ago, he said he’d sell me the business.” He stated as if, since this was good enough for him it should be good enough for anyone. “So, that’s why he said I needed to come up with some money.” This extremely intelligent business professional is at a place where many are when considering buying a company; the due diligence process. 

“How much money do you think you need?” I wasn’t sure this conversation would go in a logical direction so I started with trying to find out what he knew, what he’d agreed to, and what he wanted to do. Ultimately, we needed an LOI (Letter of Intent) to begin collecting due diligence necessities on a business acquisition.

“He said I would probably need to take out a second mortgage on my house to buy the business from him.” He said flatly. Almost as if he wasn’t sure his boss was serious. He looked around the conference room and regained his focus on the whiteboard. His analytical nature was conflicting with his emotional thoughts. I could see the mixture of expressions on his face; he was extremely stressed out.

“So, your boss is giving you financial advice on how to buy his company now? Seems a little forward. Especially if he didn’t give you a number.” I paused as if allowing my client to fill in the story. After doing hundreds of business deals and consulting on the parameters of hundreds more, I’ve found that it’s unusual for the person needing to come up with funds to seriously consider a transaction without understanding some basics like, for example, the purchase price. So, I allowed him to think about the question for a few seconds before standing to write “Purchase Price” on the whiteboard.

Even if he didn’t want to tell me, which happens often (everyone has a different comfort level with discussing their business ideas for fear of perhaps being judged by their considerations) I was bound to find out anyway; that’s what he hired me to do. He hired my team to help him work through the due diligence necessities on a business acquisition. 

“I think he mentioned $900K once.” He said under his breath in a manner that told me the number was one he’s likely not said out loud before. He put his head in his hands and massaged his temples. His shoulders slumped and he took a long while to sit back up. 

I just waited. I knew he needed a moment. Like a good doctor working with thousands of patients and potentially being numb to people’s situations, I know that not everyone’s risk tolerance is the same. $900K to one person is a helluva lot of money and to another, it might be chump change. Financing a $900K business acquisition fits squarely into Strategic Voyages’ wheelhouse of deals we have done before. That’s not to say we don’t think it’s a lot of money. It is. We also recognize that someone who makes around $100K a year might be risk adverse to wanting to take on almost a million dollar loan to buy out his boss. The weight of the number takes a minute to digest. It happens.

“Hey. So, we can figure this out, if you still want to. There’s some more questions we can work through, or, if you’re not ready, we can schedule another appointment.” I could hear him try to regain his composure through clenched teeth. 

He looked up with a conflicted expression; fear and joy. He said, “Buying this company is a huge risk for me and my family. I have a kid on the way and I don’t know where I’m going to come up with the funds to do this deal.” He wiped his face, looked at his hands with snot on them, and grabbed a tissue as he continued, “I don’t even know if this is a good deal or not. I am so used to being the smartest person in the room that even beginning to think about this business deal makes my stomach turn over. I don’t know what questions to ask. I don’t know what to look for. I don’t know if he’s being a good dude. If he’s taking advantage of me. What my wife would do if she knew this was the number. Hell. I don’t want to lose my house!” He was ranting. Paused. He blew his nose and looked to me as if to say “help.” 

I could tell he is a proud man. Educated with two masters degrees. Steadily making between $100K and $200K each year for the last 15 years. He and his wife were about to welcome this wonderful new addition to their family and he’s clearly wrestling with the enormity of it all. Totally normal for first time business buyers. The processing of it all takes time. I’ve come to understand this. I prefer to be real with clients. I tell my clients what they need to hear, not what they want to hear. It’s what’s helped me be this successful so far.

I wiped the whiteboard clean, which gave my client a minute to regain his composure. I turned around to see him writing on his notepad and refocused. I started again, this time slowly. I had to choose my next words carefully. There’s a lot of emotionality in buying a company and it’s critical to find the balance between addressing and acknowledging the emotions while focusing on the risk and rewards of the business deal. This is all part of the due diligence process. 

“I don’t know what type of relationship you have with your partner. You need to make a decision about that real soon though. Do you want her to be a part of these conversations? Do you want her to be oblivious? If you’re going to take out a second mortgage on your home, don’t you think you should talk with her about that? Never mind the number for a minute. You need to determine what type of business relationship you’re going to have with your wife. That’s up to you. I’ve seen both sides of that spectrum; one person handles everything while the other is oblivious vs both people make all financial decisions together. There’s no right or wrong here and I can’t decide which is best for you. But. We can talk through the options and see which scenario feels better to you.”

“One thing I can tell you for sure is that you’re likely not hiding this stress from anyone around you. You’re probably not able to look your wife in the face, see her growing tummy and hide how this is affecting you. Also.” I looked at the ceiling as if waiting for Jesus to give me words to speak. I continued, “If you’re this stressed out about buying the company, I bet your boss knows it too. He’s likely trying to figure out what kind of a businessman you’re going to be. Especially if he’s looking at you to be the future of the company. Part of his due diligence process is likely evaluating you. Are you ready for this journey? Can you handle the daily stresses of running this business? How do you handle stress? Who do you turn to? Do you shut down or do you show up?” I paused to allow him time to finish writing so I could make sure we’re both back to being to the same page.

Since he didn’t say anything, I thought it was best to move forward with the conversation. I said, “Here’s what we’re going to do. I’m going to give you some homework. Tangible items that, once you’ve done them, we can continue the conversation.”

On the whiteboard, I wrote the following words and explained each one as I moved from bullet point to bullet point.

Process – What are you comfortable with doing now to get as much data as you need so you can make an educated decision rooted in facts and not emotion. Figure out how involved you want your wife to be. Quickly.

Research – We’ll need to review the financials, go over employee reports, evaluate productivity levels, get contingency plans in place for staffing plans, expansion ideas, etc. I’ll help you look at the financials, but there’s a lot more to this deal than just “what’s on paper.”

Opportunity Cost – If you were to take out a second mortgage (not sure that’s the best option just yet) is this really where you want to put it? Your money is going to be locked up in the business for a while. So, if you have any other plans for your financial future, you’ll need to weigh that against what you’re doing today.

Money and Risk – Does the business support the payments? In a conservative analysis, what is the business’s revenue, profit, expenses, and debt service level? Are you comfortable with this? What are aggressive metrics? What happens if the business flops? What is your contingency plan?

Relationships and Resources – Who are you going to rely on for advice? How are you going to process complicated business decisions? What kind of relationships do you want to have with the people around you? Your boss? The other employees? The vendors? Your family? Your Friends? What are you willing to risk to get this company? How can you mitigate those risks?

He was holding his phone up so he could take a picture. He said, much more confidently than before, “I can see you’ve done this once or twice.” He’s a very self aware person. He continued, “I was super stressed coming in to see you. Unsure of what to do. You. You. You make the action items seem so achievable without much effort. It’s like you know how to give me the confidence to make these decisions on my own.”

I smiled. Thanked him for his time and we rescheduled for a week later so he had enough time to work on his homework.

Buying a company is one thing. Getting the financing for it is another. Negotiating the details of a business arrangement is yet another. But, there’s no straightforward process for evaluating due diligence necessities on a business acquisition. However, it all starts with reaching out. 

Contact my office today.