10 Steps in Buying a Business – Part 1

Thinking of buying a business? Then you have come to the right place.

There is probably no situation more pregnant with opportunity – or risk and loss – than buying a business. You can lose by buying “the wrong business” or even buying the right business at the wrong price.

So, if you are thinking of buying a business, here are some key steps you can take to accurately quantify their potential for risk and reward in your hands:
1. Are you looking at businesses in a market in which you already have domain or commercial experience, or will you be an amateur in a market new to you? If the latter, you will need to ensure that:
a. The business comes with a stable, moral key team whom you can grow to like and who can grow to like you as their new owner; or
b. You have access to expert advisors/consultants/coaches who have experience in your new industry and market along with a track record of assisting their clients to succeed.

2. Market Research. The time to do this is before you become a member of a new market by buying a business. If you have a business in mind, compare them and their competition and see how they stack up from the customer-experience point of view. Include such interesting information as market share; relative pricing; quality of service; marketing clout. Tapping into reps from one or two key industry suppliers and asking them for their ideas on the relative ranking of the key players can provide useful insight.

3. Value. Warren Buffet’s rule for buying businesses (besides a track record of strong cash flow, excellent management and a good market relevance) is that they be priced at least 20% below their market value. It means 20% below what you think – and have calculated – they are worth, it does not mean 20% below what other people thing they are worth.

Stay tuned, we are just getting started. We will cover more steps you need to take to assure you are on track.

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© Rich Kohler 2015. All rights reserved. For copies, please contact Rich at rich@rich-kohler.com.

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