Attributes of Companies You Dont Want to Buy!
There are no "rules of thumb" in the pursuit of companies to buy. Each purchase opportunity has to stand on its own merits. There are, however, attributes of acquisition candidates that need to be defined for what they really are before additional, limited resources are put at risk in a potential deal. It is absolutely critical for any proactive business buyer to understand, consider and deal with specific business characteristics that add unnecessary financial risk to the investment opportunity at hand.
The purpose of this article is to highlight characteristics of acquisition candidates that you should consider absolute "deal killers". These are brought to your attention because it is very common and natural to get so far down the due diligence trail on a company you have worked so hard to find, that IS for sale, that is right in your industry "comfort zone" and not see the inevitable financial disaster looming down the road because you became "blind" to what the future business potential will be, versus the potential of what you think it could be!
Buying Quality Businesses is a "Number's Game"
There is a direct relationship between perceived value of something that is in very limited supply and the time and effort you have invested to find it. Quality businesses, with extraordinary growth potential, that are for sale, are like the proverbial "Diamond in the rough" or "Needle in the haystack" analogies ? it takes removal of tons of dirt and mounds of hay to find what you seek!
In any proactive business acquisition pursuit, a seasoned business buyer will tell you that finding viable companies that can be purchased for reasonable terms is a "number's game". Thousands of company candidates, that lead to hundreds of contacts, which lead to ten's of acquisition conversations, that hopefully lead to one company purchase!
Going into any business acquisition effort, knowing what it takes to find and eventually secure a business purchase deal has a dramatic affect on the definition and your eventual allegiance to your business purchase criteria. If your purchase criteria are too "tight" and your commitment too rigid to that criteria, you may quickly feel you'll never find your "ideal" company to buy!
Absolutely, Unquestionably, No Brainer, "Deal Killers"
Attempting to find and qualify businesses to buy is an iterative and complex process. Each opportunity eventually stands on its own merits and purchase compromises will prevail because it is unrealistic to think you will find the exact, "perfect" acquisition opportunity. There are, however, business attributes, like these listed below, that are best left with the current company owners:
? The sellers have previously terminated two or more purchase contracts
? The current business owners have no clear, compelling reason to sell
? The sellers cannot provide basic financial information
? The business is completely dependent on one key employee
? The seller will not provide any form of "earn-out" based on future company performance
? The business relies on limited natural resources to produce its product or service
? Improper application of the company's product/ service = major $ liability
? The company has not been profitable for the last 3 years
? Pending significant legislation possibly impairs future growth
? Key personnel will not sign employment contracts or non- compete's
? Payment on acquisition debt exceeds 50% of after-tax profits
? There is an insufficient pool of labor or talent to grow the business
? There is no technical or knowledge barrier to entry for the targeted business niche
? Key patents are about to expire
? Only one supplier can provide a key product/ service ingredient
? One customer equals greater than 20% of total annual sales revenues
? A viable competitor offers ALL the products and services your customers need
? There is no customer purchase loyalty
? The overall demographics of your targeted market(s) are negative
? Extraordinary product/ service warranties are firmly established within the industry
? The product must be manufactured overseas to effectively compete
? Targeted, primary markets have had no growth the last three years
? There is existing or pending, noteworthy legal encumbrances against the company
? You determine the current business owner lies to you about "small" details
Assuming you have clearly defined and documented your critical Business purchase criteria well in advance to starting your business acquisition program, you will often start to compromise your purchase criteria as you continue to invest more time and money to find your "ideal" acquisition candidate. This is a "cardinal sin" in merger and acquisition pursuits. Compromising your purchase criteria is natural tendency, but ultimately a fatal mistake!
The importance of defining, understanding and truly committing to your critical company attributes is most important during these frustrating times. The most effective business buyers are disciplined business buyers. They are those who can decisively deal with uncovered negative company attributes and immediately move on to the next purchase opportunity.
About the Author:
Mark Smock is President of http://www.business-buyer-directory.com, the FIRST international business buyer directory of its kind. Business Buyer Directory provides a non-traditional means for proactive business buyers to locate businesses for sale worldwide that meet their exact registered purchase criteria.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Strategic Planning Information:
Related Articles
The Top 10 Priorities That Guard Your Five-Star Reputation
Making money doesn't make your reputation..
Business Plan: Planning the Operations
Writing a business plan is no easy task, sure you can whip something together in a day or so, but without proper planning you are setting yourself up to fail. Many first time entrepreneurs have a bit of trouble writing a business plan, which will be acceptable to bankers and investors.
Idaho Market for Automotive Businesses; Doing it Right
Anyone who has been watching the Idaho Market Carefully for auto services, knows that the market is ripe, ready and growing. I visited Southern Idaho after establishing franchises in Northern Idaho three years ago for our auto aftermarket franchise company.
The Chief Cause of Business Failure & Success
Business rises and falls on leadership. According to business guru, Brian Tracy, "Leadership is the most important single factor in determining business success or failure in our competitive, turbulent, fast-moving economy.
Business Plans Keep You On The Success Course
Where would your business be without a proper plan? A
business plan sets the direction for the future of the
business. It gives the business owner or manager a sense
of guidance, listing the goals and objectives of the
business from the start.
Financing Business Expansion for Your Small Company
How you finance the expansion of your business is important. Borrowing and understanding the consequences of borrowing for your financing is extremely important.
Getting Started with Succession Planning: Part I
GETTING STARTED WITH SUCCESSION PLANNING: PART IA survey of 4,300 small business owners by the Canadian Federation of Independent Business (CFIB) revealed about 37% said they plan to sell their businesses upon retirement to non-family members. Twenty-six per cent said they planned to transfer or sell their business to family members, and an equal percentage had no business transfer plans yet.
Are You Ready To Go International?
Although North Americans were the dominant population on the Internet, that has now changed, and the rest of the world has caught up rapidly. And while English is still the most widely used Internet language, it's not the language of choice for many, many Internet users.
To Go or No Go, That Is The Question
Last week we talked about a few of the ways to test the feasibility of a business idea to help determine if the idea really had merit or just looked good on the surface. To recap, I said don't bet the farm on the opinions of friends and family, consult with knowledgeable business experts, and conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis.
Rules to Setting Business Goals and Objectives: Why and How to be SMART
We all know that nothing runs without a plan, and a plan cannot run without having its objectives set.That applies to any kind of plan, whether we're talking business or personal finances, university degrees or NGO programs, website promotion or weight loss.
Pressure Washing Entrepreneurs Can Help With Government NPDES Permits
If you own a pressure washing business one of the smartest things you can do is get involved with the local and regional enforcement for storm water environmental laws. The reason being is they do not understand the washing process of the industry and you can assist them with pertinent information.
Innovators Role at Hard Times
One Research Scientist at the Hewlett-Packard (HP) Imaging Systems laboratory said Carly Fiorina was a marketing person put in change of engineers who cared nothing about the art and beauty of technology. She just wanted saleable stock to bring to market.
Legal Strategies in Business Plans
Writing a Business Plan these days is tough, venture capitalists are busy and there are so many ideas to choose from. Bankers want a tight, sweet and to the point business plan.
Communication Strategy During A Time Of Strategic Planning
"Rubbish!" shouted the large, aggressive man in the red-striped shirt (we had to pay attention to him because he owned the company).
"The staff don't need to be told anything.
Pave the Way to a Successful Strategic Plan
Many very successful business owners may never have had a formal strategic plan. Some think, "Why do we need to do strategic planning? We're doing great just like we are.
If You Dont Focus, Innovate and Evolve, You Die
After 128 years of business, a household word, Montgomery Wards, Inc., closed their doors forever and filed bankruptcy.
How To Leverage Your Current Ideas And Products Into Multiple Revenue Streams
Diversify - to make diverse, give variety, to balance, to divide securities in different industries, to produce variety, to engage in varied operations.Diversification is a wealth building strategy; it is also an excellent method for becoming more profitable.
Invalid Excuses for Poor Business Results - Rising costs
Note to Northwest Airlines - It's not about fuel costsFor the first quarter of 2005, Northwest Airlines posted a loss of $458 million. The main reason cited was high fuel costs.
The Accountability/Alignment Process: Three Steps to an Accountable Organization
The Accountability/Alignment Process: Three Steps to an Accountable Organization Generating genuine accountability and functional alignment into your workplace cannot be left to vague ambitions and abstract statements. Well designed processes must be embedded into the heart of an organization to ensure that each employee's goals and expectations are clearly defined and that the resources to bring about specific measurable results are in place.
Executive Summary for Business Plans of Franchisees
Writing a business plan for a franchised outlet of a larger company to get funding or find investors is difficult because the franchisor already has a plan which is working, but until you are privy to it upon purchase you actually know relatively few details. The franchisor must keep this information proprietary to insure competitors do not steal the information, but the franchise buyer needs the information to prepare a business plan to get a loan from a bank.