Congratulations! You've just closed a deal to purchase an existing business. But what do you do next?
If you're investing in a franchise, your freedom to make operational changes is pretty limited, but if you're taking over an independent company, you likely have a lot of new ideas you want to implement. Regardless, you can't just burn down the existing business model and rebuild it from scratch without losing the trust and respect of the staff — which you'll need if you want to succeed.
To make the management transition easier on you and any employees who may be staying on board after the acquisition, here are the next steps you should take after you buy a business. [See Related Story: Places to Find Businesses for Sale Online]
1. Do an audit of the existing processes and practices.
While you were planning the acquisition, you probably became quite familiar with how your new company works. However, there will still be a learning curve, and you'll spend your first few weeks getting to know the ins and outs of the business.
"Regardless of the entrepreneur's background and the amount of due diligence conducted prior to an acquisition, the entrepreneur will never truly understand the business until he or she starts to operate it," said Michael B. Shaw, chair of Much Shelist law firm's business and finance group. "Every company is unique, and an entrepreneur needs to truly understand that business before deciding what changes to make."
From a practical standpoint, one important consideration is the business's security practices. Steve Manzuik, director of security research at Duo Security's Duo Labs, advised business owners to do a thorough audit upon acquiring a company to identify and address any key gaps, especially if you're buying a startup.
"A lot of startups are so focused on building their business that they postpone implementing a basic security program," Manzuik said. "In addition, traditional security mechanisms can be complicated to operate and expensive to procure, leaving many startups and small businesses unable to afford them at the early stages. Any entrepreneur who is acquiring a business … needs to investigate what existing security controls are in place."
Here are a few of the key security measures Manzuik said to look at:
- What systems and/or cloud services are being used by the business (customer-facing and internal)?
- How is access to these systems controlled (unique user accounts, password requirements, two-factor authentication, etc.)?
- How are the systems managed? Are there documented standard processes for patching and configuring them?
If it's within your budget, consider bringing in a third party to audit security processes, review systems and look for weaknesses in your new company's systems, Manzuik said.
2. Communicate with the existing staff members.
Acquisitions don't often bode well for the existing staff of the acquired company. It's unlikely that the new owners will have the funds to keep everyone on board, especially if they plan to bring in more staff of their own. Mark Davis, CEO of Puro Clean, said one of the biggest challenges a new owner will face after an acquisition is fear throughout all levels of the organization.
"There is fear of the unknown, fear of change, fear of benefits being modified, fear of the direction of the company, etc.," he told Business News Daily.
The solution? Be transparent with employees. Talk to them as soon as possible, and make sure they know that you're interested in getting to know them and their company, Davis said.
"After every new acquisition I have made over the past 20 years, I have communicated directly with all employees and team members within 24 hours of the announcement," he said. "I have found it helpful to communicate the announcement verbally … and in writing, along with an FAQ that is posted throughout the organization [and] emailed to every employee. It is impossible to overcommunicate the initial message and the FAQ."
Davis suggested including your plan for your first three months in this initial communication. This plan should not be about the changes you want to make in the organization, but instead focus on how you plan to learn about the various divisions of the company, meet as many of the team members as possible and gather valuable information on how people feel about the company, he said. Then, follow through on that plan before you make any changes.
"The new [owner] needs to meet with every executive and upper-level division manager in the company," Davis said. "These meetings are ideally one-on-one and not in a group setting. If possible ... conduct these meetings in a more informal setting, like a coffee shop or a diner, [to help] the team members feel more comfortable opening up to your questions."
3. Study and understand the company culture.
Before you try to improve or alter the company culture, stop and analyze the existing culture to understand the key factors that led to the company's success, Shaw said.
"Rather than starting over with [your] vision for the culture, those key factors should form the foundation for the culture's evolution, which should be an organic process," he added.
In a franchise setting, understanding and respecting the existing culture and processes become even more essential to your success, said Glen Willard, franchise owner of River Street Sweets • Savannah's Candy Kitchen.
"It's important to understand and respect that regulations and processes are in place because they have led to success in the past," Willard said. "There are franchisors that are ready and willing to hear the input of their [franchisees], since franchisees interact daily with customers and have a good read of what they may be asking for."
But you can't just throw out suggestions and expect them to be adopted, Willard said. "Develop a plan that includes how your suggested changes or improvements will benefit the business as a whole, and take it to the top with confidence," he suggested.
4. Plan your changes carefully.
Making numerous, significant changes right away isn't always the best approach when you acquire a business. Shaw said that although you may be eager to make an impact, big moves like this shouldn't happen overnight.
"An entrepreneur should begin implementing his or her changes in a manner that minimizes disruptions to employees and customers," Shaw said. "When a business is sold, uncertainty arises for those connected with the business ... and an entrepreneur needs to ensure stability to keep their trust. When an entrepreneur proves that his changes are leading to success, then others will gain confidence that additional changes will create even more success."
Davis noted that the speed with which you implement change will depend on the health of the company when you acquire it.
"If the company is generally healthy, you do not want to make many changes [in] the first six months," he said. "If the company has been struggling, the need to make moves quickly is imperative because the talent in the organization that you will want to keep in the company is watching closely. They are evaluating your ability to figure out the issues and [make] positive changes."
If you are going to bring in new people, be sure you're making smart hiring decisions, Willard said. He noted that this is one of the most overlooked challenges of owning a business.
"Having a great staff and making the right hires is essential to the success of a business, and this can be accomplished by developing specific criteria to measure the qualifications of your candidates," Willard said. "This is especially the case for managerial hires. Owners should focus their efforts on making smart personnel decisions that will allow them to step back and focus on big-picture ideas that can help drive growth."
5. Be transparent about the changes you're making.
Change can be difficult for all parties involved, and people won't always be happy with the decisions you make. The best thing you can do is to be up front and honest about any impending changes and how you arrived at them, said Matt Moss, a franchise owner of Dogtopia.
"When I implemented changes in the first few months of owning my Dogtopia location, I was very clear with why I was making these changes," Moss said. "Employees and customers tend to be much more accepting of changes when they know exactly why the changes are being put in place, so transparency across the board is key."