My wife and I own a small-ish sign shop.  We specialize in vehicle wraps, vinyl, interior signs, and the like.  We've been selling a lot of electrical letters (think the big light up signs on the fronts of businesses) lately.  At least 4-5 jobs a month.  We sub out our work to a guy we've been working with for 7 or 8 years (even before we owned our own shop).  

He approached us today and said he's ready to get out.  He's almost 65 years old.  He's just tired of running a business and wants to retire.  He's literally considering just closing the doors and selling everything off.  But, he'd rather see most of his employees keep working and have some sort of income for a few years.  His wife is a successful professional and is also rapidly approaching retirement age.  

The offer he made us seems pretty good.  He wants somewhere around $75k but would be willing to take $15k down and make payments on the rest for 3 years.  He has 5 employees, but we would likely only take 3 of them.  2 of the fabricators/installers and one office 'manager'.  We're in need of an office manager anyway, so having someone already experienced seems, on it's face, like not a bad deal.  The purchase would include all of his equipment.  2 bucket trucks in good working condition, 30' scissor lift, forklift, 16' flatbed trailer and all the tools of trade needed to create the signs.  I would estimate the equipment and materials to be worth close to $50k or better.

He has a pretty solid customer base, including several national accounts that everyone here would recognize.  And, since we'd be bringing on board the office manager (she answers all the phones at his place) who's been there since 1998, the customers really wouldn't notice a change other than the name (we would just forward his number to ours or something similar).

So.. Pitfalls?  What to look for?  Anyone have any experience with this sort of thing?  My wife has a good contact with an attorney who works on buying/selling businesses for a living and we're going to get him involved to make sure the numbers make sense and to protect us from 'surprises' (trust, but verify!) but I'm wondering more about the unmeasurable stuff.  Employee morale - both my existing employees and his, how will customers take it, etc?

You indicated that your wife is going to an attorney that specializes in business acquisitions.  You should award her a shiny gold star. As a litigation attorney I have seen a number of instances where things went really side ways when folks did it on their own. It usually flows from buying the actual business versus buying the business' assets.  The former means the known and unknown liabilities are now yours.  The latter does not.  The attorney will likely explain this to you in detail.

Using an experienced advisor is a good choice.  They will make sure all your bases are covered, talk business valuation with you, help you through due diligence, draft the asset purchase agreement, etc.  Doesn't sound like you're asking for those details though.

Most 'pitfalls' should be taken care of in due diligence.  Due diligence is the process of making sure what he says his business is, is actually what it is.  It also helps you verify that anything that could come back to you if not taken care,  has been taken care of.

So about employee morale, it really depends on the size of the company and the type of workers.  Honestly, your employees shouldn't be affected much.  You're bringing in more work and subsequently new employees, no threat means no real worry.  Also, their day to day routine won't be disrupted.

For his employees, first why don't you want them all?  If his business needs all the employees to run, why couldn't you use them? Typically right before the deal closes, both you and him would gather his employees and tell them what is happening.  The owner talks you up and gives his faith in you.  You introduce yourself, tell them that they have jobs, expect little changes in their day to day work etc.  Usually workers are just happy they still have a job.  The uncertainty scares them and truthfully if they are going to be going to a new location that complicates things.  Saying you only want half the employees complicates things as well.  Because it sounds like there may be a larger disruption than normal, I would take all the employees and expect to lose a few.  Most acquisitions I've worked, the employees don't have much disruption and all they know is that ownership has changed. They still have the same desk, compensation, daily routine, etc.  Well at least at first anyway.  I have a client doing this exact talk today, but make sure to wait until right before the deal is done, you want the change to be immediate.  Don't tell them they are being bought and give them a month to think about it, you run the risk of losing employees.

I bought a business 7 years ago that was very overvalued and ended up going under.

From what you say on the price, you are essentially buying assets with a very small amount of blue sky, essentially nothing. I'd just have a lawyer draft up a simple contract and non compete clause.

Do not buy the business, buy the assets and start a new company name, can be almost identical if you want but with a new tax id number. You don't want his liability. On the company names it can be something like changing it from "Double A Sign Company" to "Double A Signs" as long as the tax id database okays it as not be too close. That way when the customer right the checks wrong, it's still close enough to cash without having them rewrite it.

I would not use a broker for this, just a lawyer.

That pretty much mirrors what the attorney told us.  He said we should structure it at as an asset purchase not a stock purchase.  With a stock purchase, I guess all the liability follows.

As to the employee question asked earlier, 2 of the employees, according to him, are pretty much dead weight.  They are 'gofers' and I already have that.  It might be possible to bring them on board but they do not bring anything to the table that i need.  They aren't skilled in fabrication or installation.

I think they're going to figure out something is up... our attorney said I need to go to the shop and take photos of all their equipment, record serial numbers, etc to make sure we get what our offer is contingent on.

You can take pictures and such after closing or on the weekend.  The office manager person probably knows what's up anyway even if no one else does.

Yeah, she sent us P&L's today, so I'm pretty sure she knows.  My wife is heading over there tomorrow, their crew is going to be out on installations so it's a perfect time.

At this point, we're feeling pretty excited about the deal.  If the stuff is worth what he says it's worth, I'm fairly confident we are going to make it happen.  We're leaving a lot of money on the table right now (~$65k this year) by using him as a sub.  Obviously we wouldn't put that 65k in our pockets, but a pretty good portion of it - IF his P&L's are accurate.

You can buy the name of the business as an asset along with the rest of the business assets, that way you can keep the name without the liability. The way it is structured is OldCo,LLC changes its name with the the state and NewCo, LLC files for a DBA as OldCo.

Looks like the deal is struck...  Our attorney is drafting a letter of intent which will hash out the major details.  Once that's signed, we'll draft the purchase agreement which covers everything.  Looking at October 1st as the 'transition' date.  

We are really excited.  

Everything is in motion.  Letter of Intent is signed.  Theoretically, he can't back out.  

Question for those of you who have done this before. When do we start contacting his existing customers to let them know of the transition?  Before the closing?  Right at closing?  Sometime after?  

We want to send postcard type things to everyone, if we have access to his customer list, can we get these all going ahead of time and mail like the day of or something? Thoughts?

An LOI is usually non binding on either party; I've seen several sellers walk on a signed LOI before.

Typically, everything should be done after a deal closes.  If there are a few major customers then I think it would be fine if the owner helped transition that relationship beforehand, especially if you're worried about customer continuity.  If employees don't know yet then I wouldn't disclose to customers either.

Yes, he could refuse to sign the purchase contract, but he can't shop it around at least.  

Thanks!