Once you decide on the key criteria a business opportunity should provide, a solid risk mitigation plan should be developed and followed prior to acquiring a business. Buyer’s remorse is one of the top misgivings that dissatisfied buyers have. You may be great at operating or turning around a business, but there are several specialty areas that need dug into to help ensure you are fully satisfied. Let’s start by sharing a few of these areas this week (we will share more in later blogs).
Agreements – Ensure ALL agreements are reviewed and revised by your business transaction attorney. Many agreements are one sided and don’t provide adequate protection when a deal goes wrong. Get attorney review prior to signing.
Financial Reporting – Ensure you have in-depth, historical records (P&L, Filed Tax Returns, Balance Sheets, etc) with year to date and 3 complete years of performance reviewed by your CPA. Ask an SBA lender what loan and down-payment they would support for this acquisition. If the lender won’t lend or risk their money, why should you? How does this business income and expense items perform to it’s peers in the industry? Are Sales and net income growing? Do they use a system, like QuickBooks for readily available detailed reports?
Customer/Vendor Concentration/Owner Dependence – Are all of your eggs in 1 basket? How many customers are greater than 5% of sales? Are their multiple vendors for key inventory? How much of the business is all about Bob? How easily are these relationships transferred? What added protection should be in the agreements?
Strategies for Growth in Income – Many Sellers will offer income growth strategies, but should you pay for future growth plans? If a Seller wasn’t willing to risk investing in the change, why should you? Pay for realistic performance.
Team with your key advisors, like business brokers, accountants and attorneys to work together for you to help ensure you know what you are getting into.