This article was jointly written by John Burton for NPI Technology Management and Jeff Sands of Dorset Partners LLC. We share the perspective that technology plays an important role in the buying and selling of a business.
Common advice realtors give when selling a home is to avoid investing in basement improvements as it does little to improve house values. When selling a business, will technology investments be like improving a basement or will these investments deliver a good ROI? When buying a business, there are only a few truly fatal oversights that will kill the deal–and technology can be one of them.
When buying a business, the buyer can sort out the balance sheet and customer demand trends fairly quickly. Understanding the people, processes and results comes quickly as well. With a bit more diligence, a buyer can discover opportunities in scheduling, production, sales and marketing. An independent CPA can help normalize the books so the transaction can be modeled. Within a day or two the buyer can know just where the value lays in a business, where the opportunities are, how to reshape the team and how to put an offer together.
Unfortunately this deep analysis still leaves exposure to a handful of serious risks that can be the most difficult to assess. One is regulatory compliance such as labor, revenue or environmental agencies that can padlock a business if officials even suspect gross negligence. Another is the IT infrastructure as it holds an internal “kill switch” that can halt key functions, like order processing, in a heartbeat. This technology risk is widely distributed across management, technicians, software, devices and even the power supply.
Best practices for handling technology when transferring a business
The best approach is to hire a qualified technology advisor to do a preliminary review of the firm’s technical capability. Then ask for a professionally written letter of opinion regarding the stability and reliability of the technology systems. This letter should focus on:
- Status of “heart beat” components (ie. switches, servers, backup, WiFi, email, websites)
- Major software quality and stability
- Security posture to meet compliance requirements
- System documentation
- Possible solutions to identified problem areas
Technology is often not the first resource that buyers are concerned about when determining an offer, but it can represent a significant risk if it remains a mystery. So don’t waste time and resources improving the wrong IT systems once you’ve decided to sell. Do what is needed with your IT to prevent problems (i.e. disruption of shipping or security breaches causing a fine). Avoid tech failures that can hurt sales, customers, and profits. Get a strong outside opinion letter regarding the status and make it available early in the sale process. With a well-documented technical foundation and good regulatory compliance, a new buyer will have a fair shot of success with a business acquisition. Without these, there may be too much risk to justify a purchase at any price.
About NPI Technology Management
NPI Technology Management is a technology partner, strategic advisor, and problem-preventer. We make sure our clients have the right systems and as these evolve, we help them stay ahead of the curve. As the former president and a current consultant to NPI, John Burton works with business leaders throughout the Northeast with their technology planning and execution.
About Dorset Partners LLC
We specialize in corporate turnarounds and acquisitions, saving jobs and helping entrepreneurs navigate turbulence with poise and dignity. Jeff Sands is a Certified Turnaround Practitioner and winner of the TMA’s 2017 Turnaround of the Year Award for the turnaround and sale of a $10 million aerospace machining business. In 2018 he, again, earned the Turnaround of the Year Award, this time for the purchase and turnaround of a $200 million pulp and paper mill in northern Canada. Jeff recently authored Corporate Turnaround Artistry, Fix Any Business in 100 Days which will be published by J. Wiley & Sons in 2019.
