Buying a Business?

As a general rule, there are two types of buyers: corporate (synergistic, strategic, and financial); and individual. Click the type of buyer for a detailed perspective of that scenario.

Buying a Business: Individual Perspective

"It is better to perform one's own duties imperfectly, than to master the duties of another."
Eastern manuscript - 5,000 to 3,500 BC

Are you considering buying a business. Whether or not this is your first purchase, there are many questions and considerations that need review. Assuming ownership of an existing company will probably require writing the largest check of your life and assuming liability and risks heretofore thought unimaginable. However, having the necessary down payment and risk tolerant mind set, while absolutely necessary, are just the prerequisites to begin exploring the many potential doors of opportunity and choices which lie ahead.

Today's robust economy, coupled with a consolidating and downsizing marketplace are fueling an unprecedented number of potential buyers and companies available for sale. Availability of debt and/or equity financing to finance a transaction is probably more attractive today than it has been in decades. However, unrealistic expectations from potential sellers and buyers, along with a lack of market knowledge and experience in completing successful win/win transactions, create a "minefield" of potential deal killers.

While pursuing the idea of buying your own company, focus on seeking companies that enable you to match your personal strengths and interests. Just because you have been in manufacturing previously, does not necessarily preclude you from pursuing other fields which may better fulfil your dreams and aspirations.

The principals of Arjuna, having bought and sold companies for their own account are sensitive to the process of buying a company and all of the associated emotions and dynamics of finalizing a win/win transaction. Having "been there, done that", you will find an empathetic and reassuring attitude from the staff. You will find them on your side of the desk, approaching this decision as if they were buying the company for their own purposes.

Arjuna Ventures offers the following thoughts relative to contemplating the purchase of a business:

1. Internalize your decision to buy a company.
• What is driving my interest in buying my own company?
• Am I pursuing this interest to create something that fulfills my dreams, or am I running from a circumstance with the hopes of reversing a bad situation?
• What kind of company would I like to own?
• Do I have a vision of where I want to be in XX number of years?
• How much money do I need to buy the type of company I envision.
• What access to financial resources and experience does a professional bring to the table?
• Am I prepared to commit not only my talent and effort, but also personal assets to finalize the transaction?
• How do I find quality companies for sale?
• Am I only looking for the perfect, low risk opportunity or am I prepared to consider a turnaround situation?
• Can I find the right opportunity on my own or should I engage an M&A professional?


2. Should I engage an M&A professional?
• If I search on my own, what professional services, expertise and networking might I be lacking?
• How much attention will I get from calling numerous intermediaries to see what they might have available? Most M&A professionals know that while many people see themselves as potential buyers, in reality only a small percentage actually have the wherewithal and resources necessary to complete a transaction.
• How much time and talent do I have to search for companies for sale?
• How do I know the asking price is in sync with current market conditions?
• How do I negotiate favorable terms, conditions and financing?
• How do I find legal, accounting and due diligence advisors to represent me during the due diligence and final steps of consummating the transaction?
• Do I desire to engage a full service firm which also provides advisory, continuity and business planning services once I own the business or are they gone once they have closed the deal?
• Am I prepared to enter into an exclusive arrangement and pay a retainer for the services an M&A professional will provide?


3. Engage a professional
• Do I personally know any competent M&A professionals?
• Do any of my advisors have direct working experience with an M&A firm?
• Have any of my associates used an intermediary whom they would recommend?
• Should I check professional associations such as IBBA, M&A Source, MBBI, etc. for a listing of qualified M&A professionals?
• After talking with three professionals, have I found a firm I believe can best represent my interests with integrity, in a quality manner? Do they accept ownership of my vision and expectations?
• Are they a full service firm, which not only specializes in facilitating the transaction, but can also assist me in methods and processes to grow my business once the deal is finalized?
• Do I have faith that they can successfully serve my interests above their own?
• Does my firm utilize interactive web sites such as Bizquest, M&A Source, etc. to search for businesses available nationwide?
• How well established are they and do I feel comfortable with their ability to secure sellers of quality businesses?


4. Work with your professional in an open, candid and forthright manner with full disclosure and cooperation.
• What information can I provide my M&A professional so they have a complete disclosure and working knowledge of my plans and aspirations?
• Have I been candid in my assessment of my ability to provide the required funds and resources necessary to complete the transaction?
• Have I made arrangements for the necessary advisors, especially legal and accounting to participate in the due diligence?
• Have I shared with my professional any changes in my expectation and/or direction in acquiring a company?
• Am I prepared to review prospective acquisition targets with an open and pragmatic mind?
• Is my intermediary providing me with weekly status reports?


5. Do your homework
• Am I dedicating time to study prospective industries and companies as if I were already the owner.
• What is the owner's real reason for selling? Are there any hidden agendas?
• Do I have a strong grasp of the owner's duties and any particular skills that I must learn?
• Does the transaction provide a reasonable amount of time and education from the seller during my assumption of ownership?
• Who are the key employees and what is their attitude towards the sale?
• What has been the average employee turnover?
• How readily available are replacement and/or expansion employees?
• Have I reviewed supplier agreements and stability?
• Do I understand the customer base and how to service and grow them?
• Who are the repeat and/or largest customers? How stable are they?
• Who are my competitors and how do I best compete against them?
• Do I have a complete set of financial statements and has my intermediary completed a comprehensive analysis and recasting?
• Do I feel comfortable that I am dealing with an honorable and honest seller?


6. Structure the deal
• Does this transaction meet with my initial goals and expectations?
• How am I handling the ebb and flow of emotions?
• Am I negotiating an equitable win/win transaction?
• Have I structured the deal realistically with enough capital left to operate the business and meet my income requirements?
• Am I following sound business judgement during the due diligence or am I letting my advisors "what if me to death"?
• Do I have seller financing to strengthen the deal?
• Does this transaction follow my decision process and meet my objectives.
• Does it still feel good? If so, pull the trigger. Also, understand that buyer's remorse is more times than not a natural emotion following the consummation of a major transaction.
• Once the transaction is completed put your vision into action. Remember the old adage, "The biggest men with the biggest ideas can be shot down by the smallest men with the smallest ideas. Think big anyway."