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The Advantages & Challenges of Purchasing a Legacy Business

purchasing a legacy business

The Advantages & Challenges of Purchasing a Legacy Business

Legacy businesses are special. A business that is owned by a family for many generations, has some unique characteristics. These businesses have a long history of being well known in their communities and the business name being an important part of the culture of a city or town.

When considering purchasing a legacy business, there are essential factors to consider as part of the decision-making process. Although there are numerous advantages to becoming the next owner of these businesses compared to starting a business from scratch, there are also some challenges. Not all legacy businesses are created equal, so it will require review or “due diligence” when evaluating and projecting the future success of the company. 

We are going to look at the top advantages, challenges, and some essential tips to consider when it comes to acquiring a legacy business. 

Why Buying a Legacy Business Can Be a Good Investment.

Buying a legacy business can be a great move for a multitude of reasons and although some might be quite obvious, other advantages may be hidden beneath the surface.

Not Starting From Ground Zero.

The first key advantage to acquiring a legacy business is that you are not in start-up mode, which often requires long hours and a tight pocketbook. By purchasing an established business, the products and services have already been market tested and the customers are already committed buyers. By already having an active customer base, the cost of marketing and customer acquisition is significantly reduced, allowing for the focus of time and energy to be on growth. The brand is established and they have a track record to prove it.

Additionally, it will be much easier to get business financing with a company that is already established and has been for generations. 

The Business is Primed for Growth.

If the business evaluation shows strong profitability and upside potential, another key advantage is that the business is positioned for growth. Because the foundation of the company has been established and there is already a customer base, as a new advisor or owner, you can focus on the strategic growth of the company. 

According to a study published in the Houston Chronicle, “It takes two to three years for a business to be profitable on average. When a company starts to make a profit depends on how high its startup costs are. The more capital a business needs upfront to provide its products or services and the higher its salaries, the longer it will take for a company to become profitable.” 

When acquiring a legacy business, you are inheriting a company that has well surpassed the start-up phase and should be profitable. This allows you to have complete dedication to taking the business to the next level in what it offers to its customers. You also gain an advantage that the company is already cash flowing – compared to a startup that takes years for cash flow to be strong.

Growth should be the primary focus!

The Most Important Asset Stays – the People.

Stephen Covey, a well-known business author, and speaker said this about people. “People are your most valuable asset. Only people can be made to appreciate in value.”

As we think about buying a legacy business, we sometimes focus primarily on the numbers, and for good reason. We want to see the business grow in value and profitability. And there is nothing wrong with that. But oftentimes, there is another value proposition that is missed, and that factor is the people that work for the company. It is common for employees in a legacy business to be tenured, working over decades for the same family business.

When acquiring a legacy business, you also have the unique opportunity to retain the talent with knowledge of the internal operations of the business. This can be a massive advantage to keep the business running smoothly during a transition of ownership.

Why Buying a Legacy Business Can Be Challenging.

Buying a legacy business can also present some challenges. Any time there is an ownership or management change in a business, it can really shake up the culture. Sometimes it can be for good, while other times, these changes can result in employee turnover and decreased customer satisfaction – impacting profits. The key here is to know these challenges ahead of time and to have a plan that addresses them before they become an issue that impacts the business.

Resistance Will Be Present On Various Levels.

It will be likely that you will need to make changes as you understand the internal operations of the business. And with those changes will come resistance. That could be resistance from the community the business is in, the employees, and possibly even the previous owners. To prevent friction through the transition process, it will be important for a leader to intentionally communicate with each group in a way that focuses on the positives of this change. 

It will also be important to ensure the owners show their support as they exit the business to also reduce the resistance that might have occurred. If there was a healthy culture, make sure to understand what was working well to build momentum with the team. If the culture was not something to celebrate, create a plan to impact the culture immediately when and where possible.

The Reputation of the Business Might Need Attention.

It is not uncommon for businesses to have a history of bad PR cases in their past. And if that is the case for the legacy business being acquired, it may require some effort upfront to ensure it is addressed so sales are not affected. If there is any obvious or known negativity towards the business, create a strategic plan of how to address that internally with employees and externally with customers. 

Just because the profit and loss statement looks good on paper, if the reputation is damaged, it must be addressed to avoid stunting growth.

Some Important Tips When Purchasing a Legacy Business.

Get to Know the Family.

This step is often overlooked with buying a legacy business and should be one that is foundational. If you spend time with the family, you will quickly be able to learn about their approach to running the business, the level of care for their employees, and their overall mindset towards the sale of their business. With the business being in the family for many generations, the decision to sell should be a very emotional decision. If it is not, that could be a red flag that something is wrong. So ensure you spend time with the family to ask lots of questions that will help build your assessment of the business.

Get to Know the Customers.

What are the customers buying? What are they saying in person? What are they saying through reviews online? It is extremely important to go where the customers are and engage with them to understand how they view the business. This will help understand the areas of strength to build on and opportunities to start tackling. Without customers purchasing products and services – the business would not exist, so make sure listening to the voice of the customer is part of the buying process and the long-term strategic growth plan.

Change Can Be Hard, So Don’t Go Too Fast.

When purchasing a legacy business, there will likely be numerous changes you desire to make. Those changes likely will help spur growth in the short and long-term, but during the early stages after an ownership transition – the pace of change needs to be slow to avoid challenges.

One example of a change that should not be implemented immediately is changing the name, brand or logo of the business. This could result in resistance from the community, customers, employees, and previous owners. In fact, changing the name may never be the right move if the business’s reputation is strong. This is part of what you are buying after all. 

Changes will need to be made, but the speed at which the change is implemented and its impact on the team will need to be considered.

Summary

Buying a legacy business most certainly has its advantages and challenges. The most critical step is to not rush into a buying decision but to fully vet the business from all angles to ensure you are making the best choice.

Here at Tsetserra Growth Partners, we know firsthand that it takes hard work and sacrifice to build and own a successful business. We don’t want to dismantle an owner’s legacy. Owners who transition with pride and confidence in their business’ future are our goal. We facilitate a smooth leadership handoff that maintains continuity for employees and customers.

For more information, contact us to discuss how we can serve you.

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