Don’t Waste Time on Dumb Deal

Oct 23rd, 2009 | By admin | Category: Due Diligence

Contender or pretender? Look for a better business to buy if the business does not match your acquisition criteria. You may not know this until you begin to verify the seller’s representations. It pays to expedite the seller’s production of documents for your review.

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  1. Ken Lewis October 26th, 2009 9:47 am

    What is the most important attribute about small businesses for sale that I should evaluate during due diligence?

  2. John Martinka October 27th, 2009 7:20 pm

    Here are three top attributes. First, why do customers pay the firm enough so they can be profitable? In other words, what is the competitive advantage the firm has? Second, are the financial statements accurate, especially if the seller has buried “discretionary” expenses Finally, it’s always about the people. This means the management team and key employees (often they have to be replaced to get to the next level) and the customers. With the customers, check for diversity and happiness.

  3. Larry Baumgart November 3rd, 2009 10:26 am

    I agree with John, he has a good list and good reasons behind his comments. I would also add looking at customer concentration. I normally look to see how much business is coming from the top 10 customers. If I can get a list of the top 10 by year for the last few years, that is even better. This gives me an idea of the level of risk of losing just one or two large customers. Anyone that has been in the business for very long has seen companies with 50% or more business coming from one customer. That is a huge risk issue.

  4. John Halstvedt November 5th, 2009 11:45 am

    All good comments from John and Larry. In addition, I always want to learn about their “corporate culture”. Every business has a basic way they operate and treat people that encourages relationships with a certain type of customer, supplier and employee. The good ones have a reputation for being a great place to work and they have an easier time finding qualified employees. You also want to walk in the door each morning feeling good about where you are and who you are working with.

  5. Giulio Negrini November 14th, 2009 9:00 am

    Larry Baumgart is correct: The more customers the business has the less risk to the business of losing income. I am investor that has been buying businesses from 1963 — and Larry is correct.
    John Halstvedt is correct too. Relationships with customers, suppliers and employee most be happy.

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