First Time Buyer Considerations
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Purchasing the right business is a daunting task. Purchasing a business as an owner-operator is a life altering decision. Below are some advices for first-time individual business buyers.
Do not underestimate lifestyle considerations
Is commute time to the business important? How about working hours required running it on a daily basis? Can I get family members involved in the business? While these kinds of business acquisition considerations are sometimes overlooked as “non-essential” posing them before buying a business is important. A couple that purchased a business from me in Scarborough, ON had to commute daily from King City, ON. After a year’s time and countless hours spent on the highway, the new owners had to make a decision – either move the business, or move to another house closer to the business. They purchased a house closer to the business in order to be able to successfully run the operations.
Do not change before you have mastered the basics
Frequently buyers come into an existing business and are full of bright ideas of how to make it bigger and better. Often times this is exactly what a business needs to be taken to the next level. More often than not sales and profits are on the rise in the first year of an acquisition due to the zeal and enthusiasm of the new owners. Yet, one advice that I always give buyers is to never opt for major business changes before spending enough time running it the way it has been running pre-acquisition. After all, the money a buyer has spent on a business is based on some kind of a multiple of this business’ financial performance over the past however many years. This goodwill component of the business value is tied directly to its existing clients. And nothing scares customers more than unanticipated changes. So new business owners should focus their attention on retaining key clients by continuing to provide the same level of service, and gradually develop and implement changes to the business.
Consult the former owner
It is a common occurrence that business owners, whether seasoned investors or relative novices, do think they can do things better and more efficiently than the previous owner. While this is certainly a possibility and a reason for a lot of acquisitions, a certain dose of humility in the process might come in handy. Whatever the issues a new owner might encounter, there is a high probability that similar ones have been faced by the previous owner. Keeping a former owner on the board of advisors of the company and meeting on a regular basis over a coffee or lunch is a great way to assure that you are not reinventing the wheel in every situation. In most cases former owners are delighted to stay involved and be asked for advice as needed to ensure that the business continue to their legacy.
The above are only a few, and though important not the only, considerations in a successful business acquisition. As a new business owner and a buyer, one should be careful in making sure that one does not attempt to run before mastering the art of comfortably walking. Running a successful business is a marathon and not a sprint and the most successful acquisitions are the ones that lay the right kind of foundations for this long and enduring challenge.
Posted with permission from Alex Shteriev, MBA, CBI is Managing Director and Partner at Beacon Corporation, Brokerage, a full-service business brokerage and merger & acquisition advisory services firm based in Toronto, July 2012.