When buying a business, it is critical to focus on the perceived fit between you and the business you would like to buy. Unless it is a fire sale or you are purchasing from an estate, it will be up to the seller and their broker to determine whether you will be a good fit to continue the organization’s legacy. To manage expectations and understand the decision process of the seller, you can prepare yourself by understanding your buyer type, identifying what types of businesses you are looking to buy, and by evaluating your credentials from a seller’s perspective.
What buyer type are you?
Whether you are an individual buying a business or a member of a type of group, there are many sub-classifications of buyers that sellers and brokers will view differently. By understanding your buyer type, you can narrow your search to companies that would be best suited for the financial standards, management experience, and growth aspirations standard to your classification.
Questions to Ask Yourself:
- If you were to buy a business, who would own it: you or your company?
- Would you be the one to run the business on a day-to-day basis?
- Do you require an existing management team to stay in the business to continue operations?
- Do you own other businesses, or would this be your sole venture?
- Would the purchased business stay a distinct entity, or would it be amalgamated with your other operations?
- Would you be bringing in your own staff to run the business? Are these staff members of your personal or professional network?
| Individual | Group |
| Buying Yourself a Career
Individual Investor Strategic Buyer |
Private Equity Group (PEG)
Family Office Operating Company in Industry Management Company |
What type of business are you looking to buy?
Many buyers skip over determining specific criteria that they are looking for under the logic that it would make more sense to review what is available in the market. This is a dangerous pitfall as you may end up selecting a company to purchase as it is the best option out of limited availability as opposed to waiting for a perfect fit. If your sole priority is to buy a business as fast as possible, it may be time to re-evaluate whether you are buying for the right reasons.
Questions to Ask Yourself:
- In what industries would your skillset make you an ideal leader?
- Do you want a company with an established legacy, or would you like to build the legacy yourself?
- Do you want to buy an existing business or a new business?
- Which elements of business are you most comfortable with?
- Which would you not be qualified to solve issues in?
How would a seller view your credentials?
Firms, like Robbinex, often recommend to sellers that they ensure a buyer has the minimum level of money, motivation, and management skills to be likely to succeed in running the company. While you may know that you could thrive running the business, unless you can frame your credentials in such a way that the seller also believes you could succeed, you may never get the opportunity to prove yourself.
Questions to Ask Yourself:
- What skillset does the current owner have?
- How has the current owner’s skillset contributed to the success of the business?
- How do my credentials compare to the previous owner?
- Aside from the funds to buy the company, what financial standing would I require to ensure the business survives the first year post-acquisition?
- Why do you want to buy a business?
- Why would you succeed as a new owner of a specific business?
While there is no distinct checklist for how to buy an existing business, there are questions that you can ask yourself to better prepare yourself for the extensive and complex process. By understanding your buyer type, identifying what types of businesses you are looking to buy, and evaluating your credentials from a seller’s perspective you will have at least acknowledged the most important things to consider when buying a business.
