If you are thinking about buying a business, make sure to examine these key areas to determine if the business is right for you:
1. Why do customers choose this business?
If you are buying a business with an established customer base, it is important to consider the value the business offers to its customers. Customers may choose a business for a number of reasons, and these reasons can have positive or negative impacts on a transition. Some questions to consider include:
- Do customers choose this business because it offers a superior product or service compared to others in the industry?
- Is the business preferred because its employees are experienced or highly skilled in their fields?
- Do customers have a long-standing relationship to the owner?
- Will a change of ownership impact the business’s relationship with its customers?
It is important to conduct your own research in order to evaluate how the business is positioned in its market. One way to evaluate what customers think of the business is to read online customer reviews. While online reviews are only one aspect of a company’s reputation, they may provide you with clues as to how the business is perceived in the market. You will likely want to avoid buying a business with a poor reputation, as this can be challenging to fix.
2. Does the business provide a unique product or service?
If you are considering buying a business that operates in a competitive market, you should examine the ways in which the business differentiates itself from competitors. If there is no obvious
differentiator, then you must consider the steps you will have to take in order to create a competitive advantage and the effort and costs involved in doing so.
3. What is the business culture like?
It is important to evaluate the culture of the business to determine if it is the right fit for you.
- What is the management style of the business?
- What are the seller’s relationships with managers, employees, and suppliers like?
If the culture or management style of the business does not align with your own, consider the impacts on the business if these are changed. Abrupt changes to the culture of the business can create uncertainty and risks alienating employees and managers.
- Does the business have long-standing employees? Is there high employee turnover?
Employees that have been with the business for many years can be a valuable asset in an acquisition. As a new owner, you will be able to rely on this experience to help keep the business stable throughout the transition process.
4. Is the business the right fit for you?
Just because a business opportunity appears to be a solid deal, there are still many factors that can impact the success of a transition. It is important that you consider whether your skills and knowledge align with the business. It can be extremely difficult to succeed in an industry that you have little knowledge or experience in. Choosing a business or industry that matches your experience and knowledge will greatly reduce the risk of failure.
5. Does the business align with your existing businesses?
If you are currently looking to grow your existing business through acquisitions, make sure the business you are acquiring will fit well. Look for “synergies” that will both increase the value of your existing business as well as the one you are acquiring.
Look for the following when considering growth by acquisition:
- Does the business offer products/services that will compliment your existing business?
- Will there be cost savings or added growth driven by combining the sales and marketing processes of both businesses?
- Can the businesses’ operations be integrated easily?
How will staff be integrated into your existing business? Will there be redundant roles? How will redundancies be dealt with?
It is wise to begin planning for the integration of the two businesses as early as the due diligence phase. By doing this, you will have a better understanding of the value of the new acquisition.
6. Are there any costs you have not considered?
It is important to conduct thorough due diligence when acquiring a business in order to better understand any anticipated future costs the business may face. For instance, expiring leases on facilities or equipment may lead to unanticipated costs down the road.