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Buying a Business Advice and Services

Buying a Business -

Preparation and Process Knowledge are the Keys to Success

Buying a business is a risky but potentially very rewarding way to get into the game without the possibly long start-up process, add a new offering or niche to a business, or grow an existing area of a business by acquisition.

In my experience there are 6 important phases to this process, which is followed up by the actual operation and/or integration of the acquired business.

No matter the size of the business you are buying, the industry/niche of the business you are buying or how much money you have in hand or need to be obtained to do the deal, it does not negate these business buying phases.

Phase 1: Preparing to be a good business buyer. Regardless of how much help you are getting in the process (and you no doubt should get help even if you’ve done this before many times over), you first need to set your sights, so to speak. There are a slew of points I go over with a potential buyer in this phase. We go over their background/current business position, purpose of why they are buying a business, criteria of an acquisition target and their funding position to name a few. Add in a few more key elements and you are prepared to go on the hunt with a sniper rifle instead of a shotgun.

Phase 2: Next we work on finding potential businesses worth buying based on Phase 1. There are many resources for me to point a buyer to and to physically bring to the table for them. When we have solid potentials lined up, we take action in looking into them with cursory financial information and other data available. This phase ends with developing a short list of potential players.

Phase 3: In this all important phase we are taking the limited information we have and making a valuation and evaluation of the potential business on the short list starting with the best. This leads to coming up with an acceptable offer price range that we’re comfortable with for the business transaction as well as sticking points that would have to be part of the deal to make it go through. There is a lot to work on here.

Phase 4: Time to make an offer. My preferences may be different from others but I like to make a “verbal” offer that includes many of the stipulations needed to make this a good deal for all. When all parties are in general agreement, we put it on paper in a letter of intent (LOI) to buy the business, which spells out a very non-legalese version of the potential deal as well as due diligence needs, timing etc.

Phase 5: A signed LOI leads to the start of due diligence, which is a very critical phase as we uncover golden nuggets and huge holes in the entire operation. Pro formas are developed to predict potential as well (an accountant would come in handy here to help). This is where we decide if all is good, adjustments need to be made for this deal to work or to dump it altogether. This also a good time to flesh out a potential plan of integrating the new business into the old or how you would need to operate this business successfully if you are buying without an existing business.

Phase 6: Time to bring it to the closing table. This could be quick or rather daunting depending on the complexity of the deal and should most certainly always involve a lawyer as well as an advisor. When all is said, done and put into legal docs, it’s time to sign and transfer.

This can all take from 3 months to a year to complete. But I promise you that it can easily be a very bad idea without understanding the process and getting the correct help. Chew on this as well… while you are hard at work with the time consuming tasks of buying a business, who is holding up the fort? That, my friend, is your job so assitance from a pro is essential.

And it’s not over here as now you need to make your investment work so be ready to keep an advisor on board to integrate your new business into the old or immerse yourself into the operations of a new venture for yourself if starting without an existing business.

This is where we bring that special touch that most brokers and M&A people can’t and don’t want to deliver on. We know this industry as advisors and former owners. You don’t want to go this far and see it all fall apart because you thought you “have it covered from here”.

Ready to talk? Click here to fill out the contact form to see how we can help you in buying a business that best suits your background, position and needs.