When I first started buying companies, I was obsessed with the obvious steps: analyzing revenue, looking at profit margins, negotiating the purchase price. What I didn’t realize then is that the things most buyers overlook are often the factors that determine whether a deal succeeds or fails.
Over time, I’ve created my own approach to uncovering the hidden elements that don’t always show up in a spreadsheet but completely change the quality of the acquisition. These are the overlooked steps that now form the backbone of how I evaluate small businesses.
Understanding the Seller’s Motivation
Most buyers underestimate the importance of the seller’s motivation. I’ve learned that knowing why an owner is selling is as critical as knowing what you’re buying.
If an owner is selling because they’re retiring, the transition can be smooth. They usually want to see the business succeed after they’re gone. But if they’re selling because they’re burned out or desperate for cash, you may inherit problems you didn’t anticipate.
I now spend as much time understanding the seller’s “why” as I do analyzing their P&L. Seller psychology shapes the entire deal.
Assessing Customer Loyalty Beyond Numbers
When I ask about customers, most sellers hand me revenue breakdowns or top client lists. That’s not enough. I dig deeper.
I want to know:
- How often do customers come back?
- What’s the churn rate?
- Are they loyal to the business or just to the seller personally?
One of my earliest mistakes was buying a company where customers were tied to the owner, not the brand. The moment the owner left, so did the customers. That painful lesson taught me that customer loyalty must be verified in conversations, not just spreadsheets.
Reviewing Systems and Processes
Small businesses often operate on “tribal knowledge,” unwritten processes that live only in the owner’s head. If you don’t recognize this before closing, you may walk into chaos.
I now insist on understanding systems early in diligence. Do they have documented processes? Is software being used consistently? Can staff run operations without the owner’s constant involvement?
When systems are missing, I either factor in the cost of building them or I walk away. It’s one of the most overlooked but critical steps in small business acquisitions.
Evaluating Key Employees
Numbers alone won’t reveal the human capital of a business. I’ve learned to look beyond financials and meet the team, especially those who run day-to-day operations.
I ask questions like:
- Who actually holds the customer relationships?
- Who has knowledge that the business can’t function without?
- Who is at risk of leaving after a sale?
Acquiring a business without understanding employee dynamics is like buying a machine without checking if it has all the parts. Employees carry the institutional memory, and losing the wrong one can derail your transition.
Checking Supplier and Vendor Relationships
Early in my career, I underestimated how important suppliers were to the health of a business. I learned this the hard way with a company that had a single critical supplier who raised prices six months after the deal closed.
Now, I make supplier conversations part of diligence. I ask about contracts, pricing stability, and how long those relationships have been in place. In some industries, supplier dynamics can be as important as customer dynamics.
Studying Local Market Position
Too many buyers focus only on internal operations and ignore external positioning. I’ve learned to assess how a business fits into its local market:
- Do competitors have an edge in pricing or reputation?
- Does the business rely heavily on one geographic area?
- How strong is the brand presence in its community?
Sometimes, a business with great numbers internally is being outpaced by smarter competitors. Without evaluating local positioning, you can miss that threat entirely.
The Transition Plan
One of the most overlooked steps is building a transition plan before closing. Sellers often promise they’ll help for “a few weeks.” But I’ve found that defining expectations up front saves everyone stress later.
I outline:
- How long will the seller remain available?
- What training do they provide?
- What introductions do they make to customers, vendors, and employees?
A clear transition plan transforms ownership from chaotic to controlled.
My Final Takeaway
Buying a small business isn’t just about the purchase price or financials. It’s about the details that many people skip seller motivations, customer loyalty, systems, employees, suppliers, and transitions.
I learned this not by reading a book but by making mistakes and losing opportunities. Now, these overlooked steps are the first things I investigate. They are what protect me from surprises after closing and give me confidence in the deals I move forward with.
For anyone serious about acquisitions, don’t just chase revenue. Learn to see what others ignore. That’s where the real wins are found.
If you want to follow more of my thinking on business acquisitions, private equity approaches, and real estate strategy, I share insights regularly on DrConnorRobertson.com.