Sam Penny (00:00)
ladies and gentlemen, welcome to this session of Built to Buy, how to navigate the deal without getting burned. Now, if you're an investor or an acquisition entrepreneur, you already know that buying a business isn't just about finding a good P &L and signing a contract. It's about navigating a complex process where the risk often aren't obvious until it's too late. The truth is plenty of buyers walk into deals thinking they've done their homework.
only to discover that after the inks dry, that they've inherited a mess. They're missing systems, key staff are walking out, or it's a culture that doesn't align with them at all. These are the situations that drain your time, your money, and sometimes your sanity. So today's session is about giving you the foresight and the tools to avoid that. We're going to unpack the biggest risks buyers face, how to spot them early,
and how to protect yourself without destroying trust or momentum in the deal. By the end of this session, you'll know how to ask the right questions, recognize the red flags and build protections into the contract so that you can take ownership with confidence and also without nasty surprises waiting for you in the first 90 days. If you've ever wondered how to buy smart, this is where we start.
before we get into the details, let share with you why I run this series. You see, I've bought and sold my own seven-figure businesses. I've sat in your seat, looking at opportunities, weighing the risks, and wondering what's hidden beneath the surface of the seller's story. Now I coach investors and acquisition entrepreneurs through that same process. I work inside real deals alongside buyers, brokers, and founders. I've seen buyers
win big because they knew how to navigate the process. And I've seen others get burned because they trusted too easily or they just didn't ask the right questions. The reason this series exists is simple. I want you to buy with clarity and confidence. I want you to understand how deals really work beyond the glossy numbers and the broken pitch. When you buy right, you're not just protecting your investment, you're setting yourself up.
for a smooth handover and a profitable future. In each session, I'll share the practical steps, real world examples and insider strategies that will help you spot risk early, negotiate from strength and walk away from deals that don't stack up. That's how you avoid the scars that I've seen so many buyers carry.
All right, here's what we're going to cover in today's session. First, we'll break it down the biggest risks buyers face post offer, the issues that can surface after you've committed and how to avoid being blindsided. We'll then look at how to spot deal dangers early. This is about seeing beyond the surface numbers and into the operational and the cultural realities of the business you're buying. Next, we'll tackle the art.
of asking tough questions without killing trust. Deals are built on relationships and you need to probe the truth without making the seller defensive or really closing them off. We'll also explore strategies to protect yourself during handover. The critical period where things can go wrong fast if expectations aren't clear and protections aren't in place.
And finally, we'll highlight red flags in seller behavior and documentation that often signal deeper problems. Spotting these early can save you time, money, and I tell you what, a lot of frustration. And by the end of this session, you'll have a clear practical framework you can apply to any deal, whether it's your first acquisition or your 50th. So you can move forward with confidence and avoid getting burned.
All right, here's the hard truth about buying a business. Most bad deals don't fall apart during due diligence. They unravel during or just after handover when you realize the reality doesn't match what you thought you were buying. So why does this happen? Well, first, assumptions go untested. Maybe you take the seller's word on certain systems or relationships without verifying them. Second, risks.
get minimized in negotiation. A seller might acknowledge a weakness, but downplay its impact. And in the excitement of the deal, you just let it slide. And smart buyers, they take a different approach. They verify everything before signing. They don't just accept the narrative. They dig deeper until they're confident the picture they have is accurate. They also prepare for what could go wrong after the ink has dried.
They're not scrambling when challenges inevitably arise. The point is this, a deal doesn't burn you because of one big thing. It's usually a series of small oversights that add up. Your job as a buyer is to catch them early, address them in the agreement, and make sure you're not walking into a mess you could have avoided.
So when a buyer gets burned, it usually comes down to one or even more of these four core risks. First is overstated performance or hidden weaknesses. The numbers might look strong, but are they sustainable? Are they one-off revenue spikes or is the business propped up by a few big clients that could disappear? Second, key person or staff departures. If critical team members leave after the sale,
You can lose operational knowledge, client relationships, and even momentum. This risk is huge if the business is heavily owner dependent. And third, poorly documented systems and processes. You see, without clear SOPs, the business can quickly stall under new ownership.
first months rebuilding processes from scratch. And fourth,
is cultural mismatch between you and the team. Even if everything else checks out, if your leadership style clashes with your existing culture, you're going to face resistance, there's going to be turnover and also reduce performance. These risks aren't always obvious in the information memorandum, the IM or even the financial reports. You have to go looking for them. You have to ask the right questions and structure the deal so that you're protected if they materialize.
Now, the best time to avoid a bad deal is before you sign anything. And that means looking beyond the glossy pitch deck and testing the business in real time. You need to start by looking beyond the numbers. So financials tell you what has happened, but they don't always show what's happening right now.
Visit the business, observe the operations and see if what's in the paperwork matches the reality on the floor. And also talk to multiple levels of staff with obviously the seller's permission. You often get different perspectives from frontline employees than you will from management and both are really valuable. Also review contracts in full, not just summaries. Short overviews can hide critical clauses, expiry days.
or obligations that could impact you post acquisition. And finally, validate customer relationships and retention. Check if key clients are locked into contracts, what the renewal rates look like, and whether there's overreliance on a handful of accounts. These steps take time, but they're far cheaper than discovering a problem after you own the business. And the responsibility and the bills are all yours.
So as a buyer, greatest protection often comes from asking the right questions. And you need to listen carefully to how they're answered. These aren't just about gathering facts. They're about reading tone, confidence and consistency. So start with this. What are your greatest, biggest operational vulnerabilities right now? Now, this question forces honesty about weaknesses. If they dodge the question,
That's telling in itself. And then ask, who are the three most critical people in the business and what keeps them here? This helps you assess key person risk and understand retention drivers. And then ask, what would a worst case first 90 days look like? This is another powerful question. Sellers often avoid thinking about this, but
Their answer can reveal likely post-sale challenges. And finally, ask this, if I walked away now, what would you do? This tests their motivation and urgency. A desperate seller may push to close quickly, which can be a red flag. The key is not just getting the answers, but noticing their body language, their tone their willingness to be transparent. they respond
tells you more than the words themselves.
Now, seller behaviour during negotiations, this can tell you a lot about what life will be like after you take over. If you see these red flags, you need to proceed with caution. Firstly, if they avoid specifics in answers, if you're getting vague responses or promises to send it through later, that never arrive, it may mean that they're hiding something or they haven't done the preparation. Second,
is dismissing risks with, ⁓ it'll be fine. Confident sellers address risks directly and they explain mitigation strategies. Those who brush them off might be downplaying issues that they don't want to discuss. Now, third, they become defensive when they're pressed. If reasonable questions make them uncomfortable or hostile, imagine how they'll handle due diligence or even that post-sale support.
And fourth, they won't commit to post-sale support timelines. A seller who has genuinely invested in a smooth handover will clearly outline their involvement after the deal. Now, these behaviors don't always mean you should walk away, but they are signals to slow down. You need to dig deeper and make sure you're not walking into a deal where the seller disappears the moment the check clears.
Now, one of the smartest ways to protect yourself is to bake safeguards into the deal structure itself. And that way you're not relying on goodwill. You have a contractual protection. So start with a detailed transition plan in the contract. You need to spell it out exactly what the seller will do for how long and on what terms during the handover. Include key staff.
retention bonuses or clauses. If the people who make the business run are critical to the success, you need to incentivise them to stay through the transition and consider using escrow or an earn out tied to the performance. This holds back part of the purchase price until the business meets agreed milestones post-sale. And this also keeps the seller invested in a smooth transition.
Finally, locking clear training and documentation handover requirements. Make sure all the SOPs, the manuals and the key processes are transferred and explained before the final settlement. When these protections are written into the agreement, you're going to shift from hoping everything goes smoothly to ensuring there are consequences and also remedies if it doesn't.
Now, let me share with you a quick story about a buyer who almost walked into a nightmare and also how a bit of extra digging saved them six figures. You see, they were close to signing on a business. had strong financials and also very confident seller. Everything looked clean, but just before settlement, they decided to spend some time on site. They're observing the operations over several days. And that's when
cracks started to appear. They discovered that key processes weren't documented. The knowledge lived entirely in two senior staff members' heads. But worse still, those staff had already handed in resignation letters, which the seller had not disclosed. Now, armed with this information, the buyer went back to the table and renegotiated the deal. They reduced the price. They tied part of the payment to the staff retention.
And they also added a much more detailed transition plan to the contract. Now, because they spotted the issues early, they avoided months of firefighting and also a potential collapse of the business. And the big lesson here is that the deal isn't done until you've tested every assumption and you've confirmed the facts on the ground.
Now, to make this easier for you, I've put together a DealSafe toolkit. It's the same resources I use with my coaching clients when we're assessing a potential acquisition. First, there's the due diligence checklist. This ensures you're not just looking at the financials, but also operational health, cultural fit, and transition readiness. Second is the key questions list.
These are the exact questions I shared earlier that help you uncover hidden risks. And they're designed to be asked in a way that builds trust rather than breaks it. And third is the transition plan. This is a great template that lays out exactly what needs to happen in the first 90 days post-sale, who's responsible and how progress will be tracked. And finally, look, book a one-on-one strategy session.
This is where we can go through your deal together. We can review the seller's information and identify potential issues before you sign. Because having these tools at your fingertips means that you can move faster, with more confidence, and significantly reduce your chances of getting burned in the process.
So let's do a quick recap of the key points from today's session. First, are the anticipated risks before they appear. You need to anticipate these. Don't wait for problems to surface post settlement. You need to go looking for them during the due diligence and the negotiation process. Now, second, ask the right questions. The way a seller answers and whether they're consistent can reveal more than the information itself. And third,
Lock protections into a contract. You see handshake and good intentions. They're not enough. Build in safeguards like retention clauses, a detailed transition plan and performance based payments. And fourth, you need to keep your emotions in check until the handover is complete. Deals can be exciting, but rushing or even overlooking red flags because
You want to done is how buyers get burned. Look, buying a business should be a calculated move. It's not a leap of faith. If you combine careful investigation with strong contractual protections, you're going to massively improve your odds of taking over a business that performs as promised instead of one that drains your resources and your energy from day one.
Now, if you've got a deal on the radar, or even if you've just got the intention to buy in the next 12 months, now is the time to start putting these safeguards in place. First up, book a one-on-one strategy session with me. You can do that at sampenny.com/chat. We can go through your deal. We can test the assumptions and make sure you've covered the bases before you commit. Second is to download the buyer's DealSafe checklist.
This will give you a structured process to follow for every acquisition you assess. So nothing slips through the cracks. Third is to keep building your deal making skills by listening to the Built to Sell, Built to Buy podcast. Every episode gives you insights from real world deals, including lessons learned the hard way. So don't wait until after you've signed to think about risk because
By then, the cost of fixing those problems, it skyrockets. Start now, and you're going to be the buyer who navigates the deal with confidence and comes out ahead.
All right, just to finish up in our next session, we're going to dig deep into something that's often undervalued by the buyers and that's the intangible assets. This session is called how to value and leverage intangible assets as a buyer. You see, most buyers focus heavily on tangible assets like equipment, inventory and property. But in many modern businesses,
The real value lies in assets. You can't touch them. Things like intellectual property, brand equity, customer data, proprietary processes, and even exclusive supplier or distribution agreements we'll explore how to identify these assets, assess their true value, and most importantly, leverage them after the acquisition to accelerate growth and profitability. So if you've ever wondered why
two businesses with similar financials can sell for wildly different prices. This is often the reason the intangible value has built one that the other hasn't. If you're serious about buying a business that give you a competitive edge from day one, you won't want to miss that one. I'm Sam Penny.
This has been Built to Sell, Built to Buy. Make sure you go forth, conquer and buy brave.
