Financial health in a business acquisition scenario is not sufficient. What’s the point of healthy revenue if the company’s actually on a slow decline, losing customers that its reputation is quietly pushing away? If you don’t detect this, you’ll overpay to spend years fixing it. The same logic can be applied to any other unmeasured or hidden liability.

A business needn’t have a perfect brand – but you must have a complete picture of what you’re acquiring.

Start Where Customers Go When They’re Unhappy

Many customers simply check a company’s Google rating and stop there. To be a smart buyer, you need to go three or four pages deep into third-party review sites – Google Business, Yelp, industry forums, social media postings – and try to identify trends versus anecdotes.

One review about a messy lobby or a pushy upsell is not worth considering. Fifteen reviews over 18 months citing the same pushy upsell, the same slow cashier, the same messy lobby, or the same messy rooms is a warning sign. It’s either indicative of management that doesn’t keep an eye on things or that does and doesn’t care.

Trends in negative reviews are more important than the overall score. Sentiment analysis software can be useful here if the data volume is too high, but reading through 50 to 100 of those reviews yourself probably will reveal the bigger issues.

Dig Into The Numbers Behind The Brand

Brand equity may not be quantifiable in the traditional sense, but you can track its deterioration. For instance, one of the clearest signals is an increase in your customer acquisition costs (CAC). If your CAC has risen steadily over three or four years and the size of the market hasn’t changed, it likely means your brand’s “organic” pull is waning. This means word-of-mouth referrals are declining and you’ve been forced to spend more money on “push” marketing, i.e., paid advertising and such, to make up for it. That’s a quiet little reputation problem all dolled up as a marketing challenge.

The same generalization goes for your customer retention rate. If you’ve got a brand, you’ll have customers worth something. If you don’t, it’s like pouring water into a leaky bucket no matter how much you spend on customer acquisition.

Finally, if the seller has been tracking Net Promoter Score (NPS), that’s worth asking for. If they haven’t even been tracking it, the lack of that particular clue is a pretty useful piece of information in and of itself.

Look At Who Else Deals With The Business

Customers are not the only group of people who influence a brand’s reputation. Suppliers, vendors, and business partners also have their opinions – and they tend to be much more honest than the content in advertising that a customer comes across.

A long-term supplier can let you know if a company is a timely payer, a fair resolver of disputes, and generally a reliable partner. The benefits of buying an existing business are real. However, keep in mind that a company which is known to have a poor approach to payments or whose contract disputes have become litigious poses a real operational risk to you that no amount of advertising due diligence will turn up. Find out who the suppliers are, ring two or three of them directly, and ask some straight questions – they may be prepared to speak off the record.

Also, don’t underestimate the drama on employee review websites. A constant stream of unresolved complaints about management, culture, or lack of stability often matches up with the quality of customer service. Employee turnover is a cost that multiplies into brand pollution.

Assess Whether The Brand Belongs To The Business Or The Owner

Many buyers fall for this. Some firms have strong reputations that are essentially personal brands – it’s the owner’s name, the owner’s face, the owner’s relationships and the owner’s personality that customers are loyal to. As soon as that owner walks out the door, the goodwill walks out with them.

To guard against this, stress-test whether you would buy it by asking: ‘Would the reputation of that brand survive if we took the owner out of the picture tomorrow?’ Look at how customers talk about the company vs how they talk about the owner of the company. Look at whether the social media presence is built around the business entity vs an individual.

This also means doing a trademark search early and getting ownership of the brand locked out as part of the deal. It feels like brand due diligence is sometimes the last to happen, but the first to cost you if you find yourself in a legal battle over who has the right to use a brand after the money has changed hands.

Turning The Audit Into A Purchase Decision

Eventually, the investigation must result in a choice. The logic behind established cash flow, current customer base, and proven market share is strong and significant, provided the brand supporting them is solid. Your reputation audit is not what justifies walking away from a transaction. It’s how you determine if the asking price is fair, and what, if any, contingencies or repricing are appropriate.

A brand’s reputation is an asset. Treat it as such during due diligence, and nothing the seller hands you on closing day will come as a shock.