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Buyer Advantages
to Acquiring Existing Businesses
When acquisition activity surges, it is usually
due to the potential for high returns from established business operations.
Individuals, financial buyers and corporations search for middle market
businesses because it is usually safer and more profitable than starting
a new venture. According to the Small Business Administration, more
than 50% of start-ups fail due to unproven concepts, lack of working
capital and/or poor management.
Following are some of the advantages
of acquiring existing businesses:
| • |
Growth potential can be measured
on experience rather than conjecture and based on the company’s
track record as reflected in financial statements and operating
plans. |
| • |
The need for additional working capital can be
reduced due to the immediate cash flow being generated by the
acquired company. |
| • |
Skilled employees who are familiar with the business
operation and the market may be obtained. |
| • |
Established customers gained with the transaction
can reduce the time it would otherwise take to develop an adequate
customer base to cover the overhead of the operation. |
| • |
Licenses and permits needed to support the business
can be obtained. |
| • |
Sources of capital to purchase existing businesses
are more readily available than for start-up ventures. |
Buyer Self Assessment
As a prospective buyer, you should be prepared to review your background,
work experience and financial ability to purchase a business. The
following questions may be asked of you by a business intermediary:
If an individual:
| • |
Why do you want to buy a business? |
| • |
What are your special skills and educational
background? |
| • |
What is your work and business ownership experience? |
| • |
What is the maximum amount of personal funds
you can invest? |
| • |
If you have an equity partner/investor, how much
do you expect them to invest? |
| • |
What business categories are of most interest
to you (service, retail, wholesale/distribution, manufacturing,
restaurant, technology)? |
| • |
What is the minimum income you expect from a
business to meet your living expenses? |
| • |
What is your preference for the location of a
business? |
If an equity or strategic buyer:
| • |
What are your acquisition strategy
and acquisition criteria for a business (category, size, cash
flow, competitive advantage, leverage points or synergistic
potential)? |
| • |
What is your expected financing for a purchase
of a business? |
| • |
What are the minimum requirements for prospective
business candidates? |
| • |
What is your preference for the location of a
business? |
| • |
Are you interested in a turnaround business opportunity? |
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