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How do I ensure that I can keep existing customers when buying a business?

Are there any steps that I can take or contractual provisions that will protect me from losing customers upon the purchase of an existing business?

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Answers (6)
Mike Brenhaug
BlueRock Coaching & Consulting Group
CEO/Business Coach
Orange County, CA

Here's something that I recommended to one of my clients last year that was considering purchasing a business and maintaining the customers was critical to his decision to move forward or not. In this situation there was no guarantee’s but as a buyer how do you get comfortable and really know how the customers feels about the business? Here’s what we did, we worked with the seller and put together a customer survey to capture information that addressed many of the concerns my client had so he could move forward with the deal. Another plus, that wasn’t planned at the time we did the survey, when he took over he knew exactly where to focus to improve the business. I’m happy to report that a little over a year and he has more business per customer than the previous owner. When the customer concern question comes up there's nothing like trying to go direct to the customer to get your answers.

Jun 29, 2009
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Like Don said, it depends on the business. I had a problem three years ago when we bought the restaurant we now have. The seller was a eccentric, to say the least. Anyway, she thought she could still run the business after we bought it. She just couldn't leave the business and probably didn't even want to sell but was burned out and had to. Finally we kicked her out and got our lawyer to tell her she was not allowed in the restaurant anymore.
To make a long story short she bad mouthed us so bad that we lost some of our customer base that we paid for. After she was done people thought we were so inept that we would be out of business in a few months. Three years later we are still going strong and are making a very good living.
We asked our lawyer if we had any legal recourse because we thought she violated the "goodwill" part of the contract but he said we didn't have a case.

Jun 27, 2009
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The BAF Group LLC
MD

It depends upon the business. If it is a highly, service-oriented business, and the Seller's role is pivotal in obtaining and retaining clients, you may have a serious problem. If, in the same situation, the Seller has worked for several years to put the majority of those relationships in the hands of key employees, your concerns may be minimized.

How you buy the business - whether an asset purchase or stock purchase - CAN, but not always allow Client contracts to convey with the purchase. It depends upon the nature of the business, and your question really does not offer enough information to provide you with a clearer answer.

Finally, if your business is more product-oriented, and the brand or specific nature of the product is the key to the Clients coming to and buying from that business, then you have no real issue at all. Happy to discuss this, if you wish.

Jun 27, 2009
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Auditor
USA
TX

My advice would be to write into the contracts certain claw-back provisions. For example if you pay $100 thousand for the company and lose 15 percent of the customers (by value), then you would be refunded $15 thousand from the seller.

The real value of a business that can be sold is what can realistically be transfered to the new owner... Often 100% cannot be transfered. As this sort of agreement lessens the risk to the buyer, you might expect to have a little higher sales price since you are assured a refund if business is lost (and it is always assumed that some business would be lost).

Jun 26, 2009
Steve Peters
CEO Business Brokerage
Riverside County, CA

Doug - I'm glad you are asking this now. I am a business broker, and sell service businesses that depend highly on the existing customer base. How you negotiate your offer can give you the assurance you are looking for. You are out-of-state for me, so I cannot represent you as a broker, but I can work in an advisory role. If you are interested, please shoot your contact information to speters@ceobizbrokers.com. ----- Steve Peters, President, CEO Business Brokerage

Apr 6, 2009
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Franchise Advisory Group
PA

Doug, Unless these customers are under contract, there is no way to keep them if they want to leave. There is a certain percent of customers who will leave just because there is a new owner. The best thing you can do is try to reach out to them as soon as possible and established a relationship. Reassure them that the service and product will remain the same and be prepared to find new customers, YOUR customers. Read my blog about the subject: http://franchiseadvisorygroup.net/blog/view/104/buying_existing_business_vs__start_ups

Apr 4, 2009

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