Whose advice should you seek when buying a business?
Whether you’re a new entrepreneur or have years of experience, expert guidance from specialized professionals is essential for complex transactions like the purchase of a business.
“There are so many technical details and so many moving parts,” says Dan Hurrell, Senior Client Partner with BDC Advisory Services at BDC. “Having a cadre of independent, complementary advisors helps you make sure nothing gets missed—and gives you the power to make better decisions.”
Hurrell acknowledges that no two transactions are exactly the same. Some may require professionals with very particular skillsets: Business valuators, tax appraisers, human resource specialists, IT experts, environmental specialists and the like.
At a minimum, he says the three key advisors anyone buying a business should have are a lawyer, an accountant and financial partners—angel investors, bankers and other capital providers who are financing the transaction.
“You need partners who can help you exercise healthy scepticism about the transaction so your enthusiasm doesn’t run away with you,” Hurrell says. “You want people who will make sure you do the financial and legal due diligence needed to get the right value you’re paying for.”
Your financial partners
Your financial partners could include investors, bankers and other capital providers.
Why you need them
Financial partners are key factors in the success of your negotiation.
“If you’re relying on financiers to close the deal, you’ll need their buy-in as soon as possible to avoid last-minute surprises,” says Hurrell. “They may also be able to help you assess the long-term sustainability of the business by looking at the profit margins and evaluating the management team to see how well things have been run.”
When to get them involved
Build relationships with your funders even before you make an offer so they can become your allies, and bring them into the negotiations when you submit your letter of intent.
Having a cadre of independent, complementary advisors helps you make sure nothing gets missed—and gives you the power to make better decisions.
Dan Hurrell
Senior Partner, BDC Advisory Services
An accountant
Look for an accountant who specializes in corporate accounting on the scale of the business you’re looking to buy. They should also be familiar with the tax and business regulations in your jurisdiction.
Why you need them
“There’s a lot of emotion around a transaction like buying a business,” says Hurrell. “It’s easy to take numbers at face value and see what you want to see, which can lead you to spend beyond the value you’re actually getting.”
An accountant can be more objective and dig through the seller’s books with a clear eye. They’ll know what to look for and be able to identify red flags that could indicate artificially inflated numbers before you close the deal.
When to get them involved
Start the conversation with your financial advisor early. They will need to be actively involved by the time you submit your letter of intent.
A lawyer
A corporate lawyer with experience in business acquisitions needs to be involved in the transaction early on. Depending on your situation, you might also need lawyers specializing in IP, human resources or other areas.
Why you need them
Major transactions like buying a business involve many contracts, agreements, terms, conditions and other documents that can be difficult to interpret. Proper legal guidance reduces the risk that you’ll sign something that could have unexpected consequences. An experienced legal expert will know what to look for and can also save you money by helping avoid last-minute contract amendments and unfavourable interpretations of contract language.
When to get them involved
Bring your lawyer into the process as early as possible, but make sure they’re tasked with a specific mandate, since legal costs can add up quickly.
How do you find the right advisors?
Referrals from people you already trust are almost always the best way to find new advisors—as long as they’re the right fit for the transaction. An associate might know a great lawyer, but if that lawyer doesn’t specialize in corporate deals or tends to work with much bigger (or smaller) companies, they might not be right for you.
As you consult with advisors and assemble your team, you can start to develop a good decision process based on facts and open communication. You may even want to consider setting up an advisory board to call on over time—even after the transaction is completed—to complement your knowledge gaps.
“Buying a business isn’t the only time you’ll need advice,” notes Hurrell. “An advisory board can be invaluable by providing you with objective second opinions on issues that come up throughout your business’s life cycle.”
And if you build the right board, the next time an acquisition opportunity comes up, you might already have access to the advisors you need.