Attributes Of Companies You Don?t 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.

In The News:

How to Research a Franchise  Small Business Trends
How to Help Small Businesses Survive COVID's Next Phase  Harvard Business School Working Knowledge

Your Practice is Only as Valuable as Your Referral Base

Many physical therapists in private practice have the appearance of... Read More

Three Big Barriers To Small Business Marketing Success

When you feel like you're always busy working on your... Read More

Virtual Assistant ? Questions Answered

What is a Virtual Assistant?A Virtual Assistant is a person... Read More

Aircraft Washing Service Operations Manual

Anyone who is serious about washing aircraft as a full... Read More

Seven Common Mistakes Made By Small Business Owners

Most new small businesses won't be in business this time... Read More

Competition in the Market Place and Over Disclosure Regulatory Burden

The Federal Trade Commission is assisting competitor to cheat and... Read More

Justice In Action

During the 1980 presidential campaign, candidate Ronald Reagan vowed, if... Read More

The Greatest Challenges the Internet Consultant Faces!

While there are few career paths that some would call... Read More

Combating Over Regulation of Small Business

Many small businesses do quite well due to the blood,... Read More

California Department of Corporations Attempts to PR Their Benefits to Consumers

On Monday the Department of Corporations in California revoked franchise... Read More

Beating the Small Business Cash Flow Blues

Small business owners can relieve a lot of their own... Read More

Slip And Fall Professionals; Service Businesses

Since you own a business you probably have liability insurance... Read More

The Perilous Franchise Agreement: What Did You Sign?

Purchasing a franchise has become one of the most popular... Read More

A Portable Trade Show Exhibit Makes for an Easier Show

You can make your trade show experience much easier by... Read More

Direct Mail - For Small Businesses

We hear a lot of talk about junk mail nowadays.... Read More

7 Essentinal Resources for Small Business

So you want to start a business but you don't... Read More

The Business Failed, But Did You?

Q: After years of dreaming about starting my own business,... Read More

Old Data in Database Marketing Software

Database Problems in MarketingI have been working on a direct... Read More

Are You Using a Chess or Checkers Small Business Marketing Strategy?

Until the day I learned to play chess I loved... Read More

Australian Workplace Agreements - How They Work For You

The employer / employee relations environment has been constantly evolving... Read More

Basic Psychology of Franchisee Ownership and Expansion

If you are a franchisee of a large franchise system;... Read More

Explode Your Consulting Income

Here are just a few ways to increase and diversify... Read More

From Birth to Death

Your product is dying. With the same inevitability that we... Read More

Tips on Setting Up Your Small Business Bank Account

One of the first things you will need to set... Read More

Designing a Franchise Training Program

If you intend to franchise your company you will need... Read More