Six Errors to Avoid in Buying A Business

    November 22, 2004

For most business buyers, pursuing a viable business to acquire is a once in a lifetime event. Because of the infrequency and the complexity of pursuing a business to purchase, buyers typically risk unnecessary financial resources and waste valuable time to find their “ideal” acquisition. With a complete understanding of business purchase process fundamentals, a business buyer can effectively reduce the odds of not finding the right company or paying too for one.

As a business buyer you want to use the most cost effective means available to ultimately position yourself to get first shot at your most viable business acquisition candidates and properly qualify the company to maximize your eventual return on investment.

Business buyers are prone to commit common errors within their business acquisition process. Most of these errors can be reduced or completely avoided with proper understanding of their cause and affect and a proactive focus to eliminate them within the multi-step process of buying a company. These common business buyer errors manifest themselves in six key areas. You Can Choose NOT to Make These Common Mistakes! Does making these common business buyer mistakes have to apply to your pursuit of a business? Absolutely not! A comprehensive understanding of these common acquisition errors will add noteworthy efficiency to your business pursuits:

1) Buyer Image:

In a business acquisition process, especially in the initial contact phases, establishing a credible buyer image with the business seller is paramount to positioning yourself among other potential business buyers. There essentially are two different, but related, selling processes going on simultaneously within these initial meetings between the business seller and buyer. The business seller wants to sell the company and the business buyer wants to position himself first among all buyers in consideration.

2) Buyer Qualifications:

As a business buyer you are essentially applying for the top job in the seller’s company. The business seller needs to quickly understand your unique buyer qualifications. Initially providing the business seller with an effectively formatted resume that showcases your most applicable leadership and management education, experiences and skills is an excellent first step.

3) Buyer Team:

Again, because of the infrequency and challenge of properly purchasing and eventually managing a business acquisition, the buyer cannot afford to approach the business seller without a qualified acquisition team of advisors. Without a professional group of advisors on your team the business seller will justifiably be concerned about the effectiveness of your “one man band” leadership style post acquisition.

4) Buyer Funds:

Providing the business seller with a written summary of your financial resources is appropriate, however it can be a “double edged sword”. If you show too much financial capability sometimes it increases the probability that the seller will not negotiate on purchase price, down payment level or seller financing. If you do not show enough financial wherewithal you can unknowingly disqualify yourself from further evaluating the company for purchase.

5) Buyer Criteria:

Without effectively identifying all your critical company purchase attributes early in the acquisition process a business buyer quickly finds himself looking at inappropriate opportunities, dramatically increasing his investment risks and effectively reducing his creditability with the business seller.

6) Buyer Methodology:

If a business buyer does not have a well thought out business acquisition process defined and documented, a faulty business search program will result in lost opportunities, unnecessary expenditures and many “false starts”. Disqualifying acquisition candidates is truly an iterative and evolving process, unique to each purchase opportunity. The more you can standardize the acquisition process the better results you will achieve. Quality acquisition candidates typically represent situations where the business buyer must do what they must to not only keep themselves in purchase contention with the business seller, but ultimately to position themselves as the preferred business buyer. This takes preparation and a concerted effort on the part of the business buyer to show the businesses seller that you are obviously prepared, disciplined in your evaluation process, well advised and extraordinarily qualified.

The penalties for NOT documenting your management qualifications, your financial resources and exhibiting your advisors, purchase criteria and search methodologies to the business seller can be obvious, but sometimes not. As a business buyer you must continuously ask for feedback from the business seller in these fundamental areas. Seller perceptions of you cannot be assumed and they certainly cannot be assumed that they will remain consistent throughout a lengthy purchase due diligence process.

Similar to meeting any noteworthy business challenge, whatever you can do to educate and focus yourself on eliminating common business purchase errors in advance and during the mutual business buyer/ seller evaluation process, the more effective you will be in ultimately finding a business to buy that was meant to be yours.

Mark Smock is President of,
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