Buying a business is never just a cut and dry process. It can be a painstaking effort on your part as both a buyer and an entrepreneur to do your research and to think critically about the business that you are considering to purchase. However, you should seriously consider hiring an adviser who has experience in acquisitions. An adviser will be able to make the buying process much simpler by helping you to avoid the following mistakes:
1. Buying the Wrong Business: Before considering buying a business, it is best to get a management assessment done to determine whether or not you actually have the necessary skill sets and a true passion for that particular business. Remember that your passion does not necessarily have to be for the product or the service, but it could also be for the marketing, or even the sales aspect of the business. Your Advisor will make sure that you make the right decisions and are truly excited about the new business and about what you’ll be doing for the next few years.
2. Inadequate Research: Conducting adequate research on any new business opportunity goes far beyond analyzing the financial statements. You will need to understand the customers, the market, the business’s reputation, its vendors, the competitive space, as well as any debt the company may have. An adviser who has knowledge and experience with corporate finance, will be able to advise you on the types of financial specifics that you should be researching and be able to keep you on task and guide you through the research process.
3. Understanding the True Monetary Value of the Business: When purchasing a business with the help of an adviser, it will be much harder for you to fall prey to overpricing or over-enthusiasm. Your adviser will help you conduct a proper business valuation and will then help you analyze results to you. You will learn that most business pricing models have two major components: a base (revenue or profit), and a multiplier. To establish what the base is, you will need a clear understanding of the revenue from previous years. Your Advisor will help you obtain the critical corporate financial statements and sales journals.
4. Visualizing the Future Potential of the Business: In order for your new business to be truly successful, you will need to create a successful business plan. The business plan should include your vision for the future of this new business. An experienced adviser can also provide the tools and management assessments to make sure that you are a true fit for this type of business, now and in the future. Together with your adviser, you will be able to understand future industry trends, the overall market, regulations, and changes in society, technical trends, as well as your ability to grow the business through better sales and improved marketing as well as adding more products, effective service, documented systems, and an increased capital base. Each of these enhancements can dramatically improve the business. The adviser can also aide in the success of the new business by providing executive coaching services for your top management personnel as well as by being a member of your company’s new advisory board.
By incorporating an adviser into all the elements of the business buying process, you are ensuring your own success as an Entrepreneur and new business owner.
© Dr. Earl R. Smith II