How to Buy a Business Successfully
To buy a business it takes much time, talent, and money can go into finding and successfully closing on a deal. To buy a business successfully the process begins with the formulation and review of strengths, weakness, opportunities and threats of both the buyer as well as the business being considered for an acquisition.
In reviewing a business to buy it’s important to reviewing such things as increasing revenues and profitability, adapting to shifting markets, responding to competitive pressures, extending global reach and gaining access to technologies. Such a buy review is ok but too general and such a review will not help assure a successful business acquisition and integration.
When choosing a business to buy it’s important to keep in mind that to buy a successful business with a twenty year track record and several locations that the price for such an established business will be more than a business with a shorter operational history. To buy a business with a short operating history the price will be lower but the buyer should beware and carefully check out its history to make sure the seller(s) are not just dumping a bad business “painted for the market”.
Merger & Acquisition Advisers or Investment Bankers utilize many factors to evaluate a business acquisition. The following are practical (street smart) suggestions when looking to buy a business.
1. Make an honest evaluation of yourself and your abilities or that of your company. If you are first time buyer and do not possess such skills as: sales, marketing, communication and people skills seeking to buy a business may not be in your best interest. If you are a business (company) seeking to buy a business you must also carefully consider your strengths and weaknesses since many acquisitions turn sour.
2. You must run your business enthusiastically. Will you be happy introducing a new product or an unusual service that the public knows nothing about? Can you generate honest excitement for a product or service?
3. You must have full knowledge of the product or service with which you are involved. If the seller of the business gives you little or no training in technical or management know-how, be wary of the business opportunity. If the seller has organized the operating knowledge into an operating manual, look with favor upon this business opportunity.
4. Make a review of the product or service being offered. Is the market likely to remain strong for the product or service for many years to come? Have competitors entered the market and will become a threat to your business?
5. Find out how many other companies have been in this industry successfully for a respectable period of time. A legitimate seller will provide you with information to make you confident that you are making the right decision.
6. Check the training and experience required to run the business properly. Is there a suitable curriculum of training? What is the scope of training and third party support? Does your background fit the requirements of operating this business successfully?
7. What is the company’s profit ratio to sales; to time and service requirements; and to the financial leverage requirements? Can you make more on your investment in another type of business?
8. Do you have to work more hours to make the same amount you do now? Can you invest the same amount in the business opportunity yet operate a larger operation and get a better return on investment?
9. Research company’s history. Is it a newer company with a limited track record? Is it an older firm whose products have satisfied customers for years? Is in an older company whose products or services have outlived their usefulness?
10. Evaluate the company with the associations and business groups in which the company or seller is involved. Business owners in specific industries flock together via seminars and conferences and therefore get to know each other. Tapping into the grapevine within the industry can be very helpful in learning some inside information.
11. The Better Business Bureau and similar groups collect complains about a business. These groups will give you a report if others have lodged previous complaints against the company.
12. To buy a business successfully utilizing a merger & acquisition consultant or investment banker along with some assistance from an attorney, accountant or business consultant is very important. A merger & acquisition adviser or investment banker is very versed and experienced in all of the issues relating to the sale or acquisition of a business. They can conduct an in-depth study as well as guide and protect a buyer to successfully buy a business.
Speak with an Adviser on how to buy a business successfully.
Posted by Brian s. Mazar, CBI, MBA