Blog / growing businesses
Technology due diligence when buying a business
What to check about systems, accounts and equipment before you buy a small business, and which findings are worth renegotiating the price over.
Most of the small acquisitions people ask me about get valued on revenue, customer lists and a lease. Technology shows up as a line in the asset schedule, usually something like "computers and software." Everyone nods at it and moves on.
Then the deal closes, and the new owner finds out that scheduling runs on a spreadsheet the retiring owner's nephew built, the domain is registered to an email address nobody can access, and the camera system has not recorded anything since a power failure two winters ago.
None of that kills a good business. It does change what the first year costs you, and that is a number you want before you sign, not after.
Start with who controls the accounts
This is the first thing I look at and the one that most often comes back ugly.
Find out, in writing, who the registrant is for the domain, who holds the registrar login, where DNS is hosted, who pays for email, and whose name is on the hosting account, the accounting software, the payment processor and the phone number. Not who uses them. Who controls them.
Small businesses accumulate these accounts over fifteen or twenty years, often under a personal email belonging to whoever set them up. Sometimes that person left on bad terms. Sometimes they are deceased. Recovering a domain from a registrar when the registrant is unreachable is a slow, documentary process, and it happens while your new website is down.
I wrote about this problem in who owns your business accounts, and everything there applies double when the owner is changing.
If the email and website turn out to be hosted somewhere nobody can log into, that is fixable. Rehoming a small site and its mailboxes is routine work, and my own hosting company, DrivenHost, does it, but it is a transition cost and it belongs in your budget rather than in a surprise.
Ask what runs the business, not what it owns
Asset lists describe things. You want to know about dependencies.
Pick the three operations that make the money: how an order gets taken, how the work gets scheduled, how an invoice goes out. Then follow each one and write down every piece of software and every person it touches. You are looking for single points of failure, and in businesses this size they are usually people rather than servers.
A custom application with no documentation and no developer still reachable is a real liability. So is a workflow that only functions because the owner remembers a sequence of steps nobody wrote down. If the seller is leaving in thirty days, that knowledge is leaving with them unless you buy some of their time on the way out. Build a transition period into the agreement. Two days a week for a month is worth more than any inventory of licences.
The physical plant tells you the truth
Walk the building and look up. Open the comms cabinet if there is one.
Neat cabling, labelled ports and a patch panel mean somebody cared and probably kept records. A tangle of unlabelled cables stapled to a joist, mixed with an old phone system and a switch sitting on a cardboard box, tells you what the last twenty years of maintenance looked like. That is not a reason to walk away from a profitable business, but it is a line item.
Check the cameras while you are there. Confirm they record, confirm you can get the footage out, and find out whether the recorder is under warranty or simply still running. Lots of small-business camera systems are one failed drive away from being decorative.
If the wiring and cameras need to be redone properly, that is physical work, and my company RelayPoint Technologies handles that side in Southern Ontario. I keep the advice and the installation separate on purpose.
Price the first year, not the asset list
By the end of the review you should be able to write down three things: what has to be replaced or fixed immediately, what can wait two or three years, and what is fine.
The immediate pile is a negotiating item. Expired support contracts, equipment past end of life, software that no longer gets security updates, a backup that nobody has tested: these are deferred costs the seller chose not to pay, and the price should reflect that.
The two-to-three-year pile is your capital plan. It is also the honest version of what people call technical debt, which in a small business usually looks like old hardware and undocumented processes rather than bad code.
When to walk away
I have only seen a few genuine technology dealbreakers, and they share a shape. The business depends entirely on a system nobody can explain, nobody can support and nobody can replace without rebuilding how the company works. If the software is the business and the software is a mystery, you are buying a rewrite, and you should price it like one.
Everything else is arithmetic.
If you are looking at a purchase and want a second set of eyes on the technology before you commit, that is exactly what my assessment work is for: a few days of review and a written list of what you are inheriting, quoted as a fixed fee. Reach out through the contact page and tell me what you are looking at.