Where to Start After Purchasing a New Business
When buying a new business, a lot of time and effort is spent searching for the right fit. Once the decision is made to pursue the deal there is even more work to do during the due diligence process. Finally, if the deal makes it all the way through to closing, it is now time to begin to run the company. To ensure an efficient transition and take over, there are some key steps that a new business owner should take. A common solution for this transition period is the creation of a strategic plan, often referred to as the 90-Day Business Plan.
Often a new business owner will have developed plans for change during the due diligence process and will be eager to dive in and implement changes immediately. However, to ensure a smooth transition, it is important to stay patient and spend time understanding as much as possible before applying a lot of changes that could disrupt the daily operations of the business and potentially create even more discomfort with the employees.
Upon taking over the new company, it is imperative to have a strategy in place with short- and long-term goals that can be accurately measured and carried out to completion. This 90-day plan is often broken down into 30-day sections to what is called a 30-60-90 Day Business plan. The first 30 days would include more introductory type tasks such as announcing the new ownership, and meeting with employees. This is also the time to gain a deeper understanding of the knowledge base of employees, systems, operations, clients and vendors. This time should be spent learning and documenting as much as possible about each area to develop a concise strategy for the coming months. The next 30 days could include a deeper dive into some areas where it has been determined certain changes would benefit the organization through knowledge previously gained. To aid in the execution of changes a list of short-term goals should be created for immediate improvements on some of the low hanging fruit. By the end of the 90 days, some key improvements can be implemented as well as the fostering of a new culture and a more long-term strategy for the business. Some key areas which should be addressed during the 90 Day process include:
Employees: the employees will have been evaluated to keep the high performers and let the lower performers go. While letting employees go can be a difficult task, it is imperative to the organization that this piece of the puzzle is figured out in the early stages of ownership change. Employees that have been doing a great job for the company and seem to have a desire to grow into the new environment should be kept and even potentially rewarded through new compensation plans or other benefits to help further motivate the team. On the other hand, this is also the time to eliminate any employees who may have had a history of poor performance or disruption. Taking care of this early in the transition will ensure that the feelings of uncertainty and anxiety of the team is not prolonged longer than necessary. These changes also will encourage a faster transitory period as well as help to define a new company culture.
Clients: Customers should also have been evaluated to understand contracts, billing history and client mix to name a few. Many new owners find that the “Pareto Principal” has held true when it comes to the company’s client mix. In the early 1900’s economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by 20% of the population, this same “80/20” rule has also been found to occur in many other areas including the client mix of many businesses. For example, a new owner may find that 80% of sales come from 20% of their clients. The same could also hold true for level of effort. Owners may also find that 20% of their clients take up 80% of their time. When the clients that take up most of the time are also the ones that are providing the least revenue this can become a problem. In many cases businesses that have not developed strong policies and procedures could treat clients very differently depending on the circumstance. For example, owners may find that their employees are doing a lot of extra manual work for some clients that they do not provide to others. They may find that even though they are working harder they usually charge them the same fee, or sometimes even less depending on how long they have had the client in place. During the discovery process it is important to evaluate each relationship and determine whether there needs to be some revamping of contracts to address each relationship, or to standardize service. This change can often cause conflict with clients particularly if services are being reduced or pricing is being increased. However, many owners may determine that the risk of losing a particular customer many be a better solution that providing them extensive, customized services that may not be in the best interest of the bottom line.
Vendors: As with clients, vendor contracts should also be understood, and new potential vendor solutions should be considered. The initial phase is the perfect time to dig into the existing vendor contracts since vendors will also be aware of the recent ownership change. Often a company has become comfortable with their current relationships and has been hesitant to change as they may have simply not had the time to focus in this area. Gaining a thorough understanding of this area and bringing in potential competitors to evaluate alternative solutions can help to reduce costs or potentially lead to a better more efficient solution that a new vendor may offer.
Marketing: Ownership change is also the perfect time to determine whether there will be a change in the branding of the company. With new ownership, it is a great time to re-introduce the company to new prospects as well as existing clients. This can be carried out through the revamping of the look and feel of the company and taking on a new identity. This would be a good time to see if the current company website portrays the image the new owner has in mind as well as effectively targets the customer base. The time should be spent to evaluate what marketing activities the previous owner did that worked well and which ones did not. The new owner may want to hold a grand re-opening event, create new opportunities to introduce new products or services, and/or obtain feedback from existing customers to improve its offering. This new look should also be implemented throughout the company including marketing materials and online/social media presence etc.
When buying a new business, it is important for new owners to refrain from making immediate changes without fully understanding what they are getting into. Developing a 90 Day Business Plan will help to fully analyze certain key areas of the company and ultimately lead to the underlying strategy and creation of short- and long-term goals that will be key to the further growth of the company.