From the JPAbusiness Strategic Business Insights blog archives
In our previous blog we talked about the financial issues related to customers, but there is a separate issue regarding customers and that is ‘relationships’.
A business may have 50 regular and loyal customers and yet 15 of those may represent 60% of the sales on a regular basis.
The vendor needs to think about how they transfer those relationships to the purchaser.
The vendor may think:
“Why do I need to bother about that? I had to establish those relationships myself; the new purchaser can look after their own relationships.”
The vendor will find, however, that the new purchaser will be anxious to establish those relationships as it’s for the good of the business that they are established early.
A vendor who shows a willingness to facilitate these meetings and relationships will also place themselves in good stead with the purchaser, which all goes to supporting a successful sale.
Best practice is to plan out a contact program of meetings and greetings ahead of the completion date, even if the actual meetings may not occur until post-completion.
As well as keeping the purchaser happy, it means key customers are given a heads up and there is no chance of their being offended by hearing the news of the business’s sale ‘on the grapevine’.
Again there are several issues to consider here, with the most important ones being:
- Supplier accounts.
If you rely on suppliers for the products you sell you might have relationships with five, 10 or 20 key suppliers.
It’s important to note that a purchaser coming in will need to establish relationships with those suppliers too. They’ll need to do credit applications and sort out terms, and they’ll need those relationships in place from day one, in order to operate.
It’s likely that as the vendor you will be called on to assist in making those connections.
The question is: when should you as a vendor allow a purchaser to contact your suppliers?
Just as a vendor needs to plan out a contact program of meetings and greetings between the purchaser and key customers, so there needs to be a similar contact program arranged with key suppliers. Again, the meetings may take place after completion but it is important to start the process before completion.
Of course, vendors may experience pressure from the purchaser to introduce them to the top five or 10 suppliers and customers before completion. I’ve had circumstances where that has occurred and in some instances it’s a condition of sale.
This is particularly important where there are formal supply or distribution agreements in place that may need to be assessed in the due diligence process or assigned/transferred as part of the sale process. If that’s the case, then that has be arranged ahead of time.
Ideally vendors need to be careful and ensure they have a strongly binding contract before disclosing the sale process to those key suppliers.
As a vendor it is equally important to communicate the news of your sale with your suppliers, once you’re sure of it proceeding.
You will need to advise them of the date of completion and the fact your obligations in terms of orders will end on that date, and the new purchasers’ obligations will start on the next due date.
If that’s not planned out and clearly communicated to suppliers ahead of time you will find there will be a mismatch of accounts and you may be charged for things that relate to the new purchaser.
When it comes to buying and selling businesses, a lot of money can be made or lost based on your inventory management.
Often businesses are sold subject to a stocktake in the lead-up to or upon completion. Usually stocktakes are held within 24 or 48 hours of completion date.
A stocktake can be quite a significant exercise and there is a lot of value involved. Vendors need to be very planned about how the process will work and they need to include the purchaser in the planning so everyone is clear ahead of time on how it will happen.
A smart vendor will start doing pre-stocktakes to ensure they have their stock lists in order well prior to completion. This will ensure they know where potential slow-moving and obsolete stock might be found, and where there are gaps.
That way, when it comes to settlement, they don’t get any nasty surprises regarding the actual value of their stock at hand, versus what they thought it might be.
A good business broker will offer you as a vendor assistance in planning and running the stocktake to ensure it is appropriately conducted for you, and also to provide the purchaser with confidence it has been robustly undertaken.
Originally posted by James Price, February 15, 2016.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.