Four Mistakes Entrepreneurs Make When Buying aBusiness
By Dr. Earl R. Smith IIDrSmith@Dr-Smith.comwww.Dr-Smith.comBuying a business is never just a cut and dry process.It can be a painstaking effort on your part as both abuyer and an entrepreneur to do your research and tothink critically about the business that you areconsidering to purchase. However, you shouldseriously consider hiring an advisor who hasexperience in acquisitions. An Advisor will be able tomake the buying process much simpler by helpingyou to avoid the following mistakes:
1. Buying the Wrong Business
: Before considering buying abusiness, it is best to get a management assessment done todetermine whether or not you actually have the necessary skill setsand a true passion for that particular business. Remember that yourpassion does not necessarily have to be for the product or the service,but it could also be for the marketing, or even the sales aspect of thebusiness. Your Advisor will make sure that you make the right decisionsand are truly excited about the new business and about what you’ll bedoing for the next few years.
2. Inadequate Research
: Conducting adequate research on any newbusiness opportunity goes far beyond analyzing the financialstatements. You will need to understand the customers, the market,the business’s reputation, its vendors, the competitive space, as wellas any debt the company may have. An Advisor who has knowledgeand experience with corporate finance, will be able to advise you onthe types of financial specifics that you should be researching and beable to keep you on task and guide you through the research process.
3. Understanding the True Monetary Value of the Business
:When purchasing a business with the help of an Advisor, it will bemuch harder for you to fall prey to overpricing or over-enthusiasm. Your Advisor will help you conduct a proper business valuation and willthen help you analyze results to you. You will learn that most businesspricing models have two major components: a base (revenue or profit),and a multiplier. To establish what the base is, you will need a clearunderstanding of the revenue from previous years. Your Advisor willhelp you obtain the critical corporate financial statements and sales journals.