The Top Five Mistakes to Avoid When Buying a Business
Buying companies really is the most fun you can have with your clothes on! Well, at least if you’re in business or an entrepreneur.
People I talk to are usually quite intrigued to learn more about the process. Naturally, however, they often also say that it must be very risky. My reply is usually something along the lines of, “In life and in business there is no such thing as a risk free existence – we could all walk under a bus tomorrow!”
Having said that, any sensible person would take steps to mitigate risk and try to make sure that acquiring a business is a successful exercise. So, I offer these five points based on my own mistakes and experience.
It was Oscar Wilde who said, “Experience is the name we give to our mistakes” and it’s my belief that you only grow as a person through making mistakes.
That said, if I can help you avoid these bad boys then some of my work is done!
So here’s my top five:
- Do not neglect to build rapport with the seller. Not only for the deal to be successful but also for the deal to endure after completion it’s really important that you build strong relationships with sellers. Sometimes, both before and after completion, problems will crop up and without a good relationship you’ll struggle to resolve them.
- Never try to be clever or a winner in the deal. Over the years that I’ve been doing deals I’ve met lots of sellers and advisors who believe that your sole objective is to rip them off. Patient negotiation and the application of sound principles (like ours) will solve that problem.
- Never get caught up in the emotion of the deal. This is not easy to avoid, not least because of the time and effort you will naturally put into getting a deal completed. But certainly, in the early stages, remember that the deal of the century will come along next week.
- Make sure your numbers stack up. This sounds obvious but believe me, this can become a schoolboy error of serious proportions. Unless you have a thorough financial modelling or forecasting system, you simply won’t have a clear idea of what your acquisition will look like after you complete. Fail to prepare, prepare to fail!
- Don’t outsource the Due Diligence. Sometimes there is either an expectation or an inclination to ask your lawyer and external advisers to run the Due Diligence process. This is not wise for two reasons; firstly, you’re the buyer not your advisers so you need to know what’s under the bonnet of your target. Secondly, you’ll save a ton of money!
If you want to know more about any of these points and other terrible mistakes I’ve made along the way, please get in touch via firstname.lastname@example.org. I read all the emails and I will reply.