“Give me 1 reason why we should buy you.”

A buyer asked me that on the phone the night before his firm acquired a company I was helping bring out of bankruptcy. My answer was 1 sentence: this company always generates cash.

I have thought about that call many times since, because it is the right question for every acquisition, from either side of the table. Whether the work is financial due diligence for a $450M private bond placement or a small business changing hands on Long Island, the questions underneath do not change very much. What changes is how honestly they are answered.

Buy the cash, not the story

Every seller has a story, and most of the time the story is sincere. But a story is not a cash flow. Before anything else, a buyer should be able to answer 3 things: where the cash comes from, how much of it is left after the business pays for itself, and whether it will still come after the seller walks out of the door.

Revenue that depends on 1 customer, 1 contract, or 1 owner's personal relationships is not the same revenue as the number on the page. It may still be worth buying. It is just worth a different price.

Diligence the people, not only the numbers

The financial statements tell you what happened. They do not tell you who made it happen. In every business there are a few people who carry the customers, the know-how, or the trust of the rest of the team. Know who they are before closing, and know what they will hear on day 1.

Decide your prices before your customers do

Years ago, a business I worked in decided to grow by launching a $19.99 membership next to its existing $65.99 membership, and advertised it on every train and bus line in the city. New members came in at $19.99. So did the existing members, who cancelled at $65.99 and returned at $19.99 for the same service. You do not pay 2 different prices for the same plate of food.

Acquisitions create this problem quietly. 2 customer bases, 2 price lists, 2 sets of terms. If the buyer does not decide how the prices will come together, the customers will decide for the buyer, and they will always choose the lower one. Model it before closing, not after.

Put a date on every piece of the integration

The deal has a closing date. The integration usually does not, and that is where value leaks – the 2 accounting systems still running in month 9, the payroll still on 2 calendars, the reports nobody fully trusts.

In 30 years, I do not remember missing or changing a single go-live date in my areas of responsibility. That is not because I am special. It is because every date had an owner, and every owner knew what it would cost the business if the date moved. Do the same for the integration: systems, payroll, banking, customer contracts, reporting – each with 1 name and 1 date.

Treat the acquired team as equals

People in an acquired company wake up the day after closing wondering whether they still have a place. We may have different roles, but we all eat, drink and sleep. How the buyer speaks to them in the first weeks is often remembered longer than anything in the purchase agreement.

When difficult decisions do come – and in most integrations they do – how a decision is delivered is part of the decision. You never, never burn the bridge.

A few questions before you sign

A - Where does the cash come from, and how much is left after the business pays for itself

B - What happens to revenue if the seller, or 1 key customer, leaves in the first year

C - Who are the 3 people this business cannot lose, and what will they hear on day 1

D - How will 2 price lists become 1, and what will that do to revenue

E - What will the integration cost, and who owns each date

A business, by law, is a perpetual entity. When you buy one, you are not buying its last 3 years. You are buying its next 30. Price it, and run it, that way.