I was recently asked what are the mistakes many business buyers make. I answered with three top ones. Here they are.
Not continuously prospecting for companies. Before this, however, is that too many buyers don’t even have a search plan or system (they just wing it). Even those buyers who do have a system fail to regularly do all the tasks necessary to be successful. Why? Sometimes it’s because it can be painstakingly hard work and even a bit boring (and it is time consuming). Sometimes it’s because success comes in waves and when in the middle of a “dry spell” buyers get frustrated because they don’t see the results of their efforts. On the flip side, success often leads to reduced activity because there’s a feeling that a deal may be in-hand. Bottom line, to be successful in finding a company to buy sooner vs. later buyers need to consistently do all the prospecting activities necessary.
A second mistake is looking for the perfect business or perfect deal. There are no perfect businesses or deals. Too often buyers take a first look at the business, see all the warts and forget that every business has some warts and blemishes. How they handle those shortcomings is the key. Often I’ll see lists of questions about minutia before the buyer has seriously looked at the company (say after a first, let’s get acquainted, meeting). The same with deal structures. It has to be win-win. One sign that it is a win-win deal is when both buyer and seller are telling me they are giving on everything and the other party isn’t giving at all (reverse, or maybe perverse, logic at play here).
The third mistake I gave tied into number two. Frequently buyers will lose track of the opportunity the business presents. My most successful clients have been the ones who have concentrated on the upside (not forgetting the warts when it came to deal structure time). For example, realizing the elderly owner was gone on extended vacations numerous times a year (just by being there the buyer figured he could do better), putting in a web based ordering system to save customers time and reduce the company’s employee time when booking orders and having studied the market to know the company was seriously undercharging for their products, then raising prices to slightly below market and increasing profits almost immediately. Buyers want potential and while they don’t want to pay for unrealized potential they can’t forget about it when analyzing a business.
A bonus mistake is that sometimes buyers get, “Buyer fever” and want a particular business at almost any cost. I have had clients tell me things like, “I don’t care if I pay X or X plus $100,000, I want that business.” If the upside justifies this it’s fine. If it doesn’t justify it may mean the buyer works hard for a couple years just to get the value up to what he or she paid for the business.
