How to Buy a Business

Here we outline the system we will explain in the rest of this section.

Why are you considering buying a business?

How does this support your personal goals?

After all, if the business is to serve you and not you the business, then what must it deliver to you?

Thie lecture shows you how to set your own personal goals, translate them into financial objectives, and then work out how to construct a pipeline of businesses to achieve them.

After all, if you can buy one business, you can surely acquire a portfolio.

In the previous lecture you translated your personal goals into an outline business acquisition strategy.

You now need to know what businesses to look for. Here we pose a set of questions to enable you to define what your ideal target business looks like.

If you have a business, then you are already part of a community of suppliers, customers, competitors and complementors who are all potential targets. If you do not have a business, then you have experience and networks that should show you where to find the ideal target defined in the previous lecture. This lecture shows you how to find targets, sift out those that are clearly infeasible, evaluate what the targets would look like in your hands, and abandon those that do not advance your strategy. The targets that pass through this filter are worth approaching to see whether a deal would be welcome. 

Every target that passed through the previous stage is a potential winner for you. Once you have established that the owner wants to sell, and you know the shape of a deal the owner would accept, you are into negotiation. Here we show you  how to construct a deal, what information you need from the owner to support you, what risks you need to grip, and how to decide whether to abandon or commission due diligence. 

Your acquisition is now serious. You have assessed that the target will advance your strategy, and that its value in your hands meets your criteria. You have gathered information on your own, assessed the information the owner has supplied, taken advice from your power team, and arrived at a deal that the owner is prepared to accept. However, there are things about the business you may be unable to uncover unless you are diligent in examining legal documents, commercial agreements, employment contracts, financial accounts, bank statements, etc.

This is all about reducing your risk as far as possible, much as you would if you were buying a house. In this lecture we introduce the "due diligence" process and scope it for different types of business acquisition.

The question due diligence addresses is

Is this the right acquisition to gain the right benefits at the right price that make the right advance for your strategy with the right risk?

This risk may appear in any component - financial, commercial, operational, regulatory, legal, employment, environmental, IT, tax, etc - or across components. The power team earns its fees by enabling you to identify the risks you bear and to design actions to mitigate them down to a tolerable level whilst retaining the value of the target to you.

Whilst due diligence will cost money - which may be paid from the business once acquired - its primary focus is to quanitfy the confidence you can have in the value you seek to realise from the acquisition.

The transaction between you as the buyer and the owner as the seller matches the value you see in the business to advance your strategy and the value the seller sees in the future without the business. Assessing value is therefore be at the heart of designing a transaction that results in a deal.

In this lecture we develop these two perspectives on the deal and identify what a good deal looks like. This serves as an introduction to the lectures on valuation that follow.

One of the first questions a business owner will ask of advisors is "What is my business worth?" Whilst, ultimately, the answer must be "What someone is prepared to pay for it" there are some methods that may be applied to arrive at a "guide price". In this lecture, we present these valuation methods and comment on how useful they are in valuing a business. 

Whatever the valuation methods tell you about the value of the target, what are you prepared to pay to acquire it? After all, value is always in the pocket of the purchaser, regardless of the seller's opinion. In the limit, if no-one is prepared to buy, the article being offered has no value.

In this lecture, we show how to calculate the value to you from the improvements you can make and the synergies you can exploit with what you have already, and from this how to work back to what you can offer the seller.

Whilst, logically, this is where the analysis matters, this will form the basis of the deal proposed in the "Open Negotiations" step. The calculations that supported that proposition need to be revised with the information due diligence has uncovered.

This video explores a spreadsheet used in a recent acquisition to propose a range of deals. It shows how the various business levers can be set to forecast both the business performance and contingent sums paid to the seller. The spreadsheet shows how Monte Carlo analysis can be used to build multiple scenarios and thus improve confidence in the deal.

This lecture compares the perspectives the buyer and seller bring to the negotiation and what issues need to be addressed to prepare to transfer the business from seller to buyer.

Closing the deal is only the end of the beginning: you need to take over the business and, if you already own a business, integrate the new into the existing one(s). Even if you have no business already, you will need a comprehensive plan for your first day, a detailed plan for your first one hundred days, an outline plan for your first five hunderd days, and SMART objectives for your first thousand days. In this lecture we identify the most important issues you should address on the first day and in the first hundred days.