Common Pitfalls In Buying a Business - An Introduction
Common Pitfalls In Buying a Business - An Introduction
Common Pitfalls in Buying a Business – An Introduction ©
By: Dennis J. Gerschick, Attorney, CPA, CFA
This is the first in a series of articles that will address the mistakes that are commonly made by purchasers of a business. The mistakes I’ll address are made at every level – from the buyer of a small “mom & pop” business, to executives who buy multi-billion dollar businesses. The mistakes made are often the same, they just vary in their scope. We should all learn from our own mistakes, but that is often a painful and expensive process. Consequently, I believe it is much better to learn from the mistakes made by others.
A buyer of a business can make many different mistakes, some are more consequential than others. This series of articles is not intended to address every potential mistake, – that would be impossible. However, this series will highlight numerous mistakes that are commonly made. A partial list of common mistakes includes:
1. The buyer is too anxious to close the deal.
2. The buyer overpays for the business.
3. The deal is not structured properly.
4. The buyer’s due diligence is inadequate.
5. The purchase price is not financed properly.
6. The purchase and/or financing are not documented properly.
7. The buyer does not know or does not fully understand the business.
8. The buyer does not have any acquisition criteria.
9. The buyer does not get appropriate professional assistance.
10. The buyer fails to consider all of its options.
It is important to understand that several of the above are interrelated and are not completely independent. An important aspect of buying a business is to buy it at a fair price, not an inflated or overvalued price.
Buyers should consider their own motives for buying a business. What are they trying to accomplish? Are they buying a job? Have a desire to be their own boss? Want to eliminate a competitor? Many people have taken early retirement and used their money to buy a business. Many of them viewed it as taking a step down from a large publicly-traded corporation to a small private company. Many of them have suffered the consequences. What is better? Working in a large publicly-traded corporation or a private company? There is no correct answer because they are simply different worlds. The skills needed to succeed in each are different. Executives of large corporations often cannot adjust to working in a smaller business. They simply do not have the experience or the proper attitude.
How badly does the buyer want to do a deal? I advise clients that they should not get emotional. I tell clients, deals are like trains – another will come along in fifteen minutes. You should not feel compelled to do every deal that comes along. This is easier said than done, because as I’ll explain in a future article, as a person invests more time and money investigating a potential deal, the harder it is for them to simply walk away from their investment. They start to believe they have to do a deal, and will spend whatever it takes to get it done.
© 2007 Dennis J. Gerschick All Rights Reserved
Common Pitfalls In Buying a Business An Introduction - To learn more about this author, visit Dennis Gerschick's Website.
Like this article? Share it with your friends
Note: The following article is not legal advice. Competent legal, tax, and financial counsel should be obtained before doing a deal.
Common Pitfalls in Buying a Business – An Introduction ©
By: Dennis J. Gerschick, Attorney, CPA, CFA
This is the first in a series of articles that will address the mistakes that are commonly made by purchasers of a business. The mistakes I’ll address are made at every level – from the buyer of a small “mom & pop” business, to executives who buy multi-billion dollar businesses. The mistakes made are often the same, they just vary in their scope. We should all learn from our own mistakes, but that is often a painful and expensive process. Consequently, I believe it is much better to learn from the mistakes made by others.
A buyer of a business can make many different mistakes, some are more consequential than others. This series of articles is not intended to address every potential mistake, – that would be impossible. However, this series will highlight numerous mistakes that are commonly made. A partial list of common mistakes includes:
1. The buyer is too anxious to close the deal.
2. The buyer overpays for the business.
3. The deal is not structured properly.
4. The buyer’s due diligence is inadequate.
5. The purchase price is not financed properly.
6. The purchase and/or financing are not documented properly.
7. The buyer does not know or does not fully understand the business.
8. The buyer does not have any acquisition criteria.
9. The buyer does not get appropriate professional assistance.
10. The buyer fails to consider all of its options.
It is important to understand that several of the above are interrelated and are not completely independent. An important aspect of buying a business is to buy it at a fair price, not an inflated or overvalued price.
Buyers should consider their own motives for buying a business. What are they trying to accomplish? Are they buying a job? Have a desire to be their own boss? Want to eliminate a competitor? Many people have taken early retirement and used their money to buy a business. Many of them viewed it as taking a step down from a large publicly-traded corporation to a small private company. Many of them have suffered the consequences. What is better? Working in a large publicly-traded corporation or a private company? There is no correct answer because they are simply different worlds. The skills needed to succeed in each are different. Executives of large corporations often cannot adjust to working in a smaller business. They simply do not have the experience or the proper attitude.
How badly does the buyer want to do a deal? I advise clients that they should not get emotional. I tell clients, deals are like trains – another will come along in fifteen minutes. You should not feel compelled to do every deal that comes along. This is easier said than done, because as I’ll explain in a future article, as a person invests more time and money investigating a potential deal, the harder it is for them to simply walk away from their investment. They start to believe they have to do a deal, and will spend whatever it takes to get it done.
© 2007 Dennis J. Gerschick All Rights Reserved
Common Pitfalls In Buying a Business An Introduction - To learn more about this author, visit Dennis Gerschick's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
|||
David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
|||
Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
|||
Casey GollanCasey Gollan, Business Coaching & Mentoring Programs. Add $1 Million to $10 Million in the next 1 to 3 years. Since 1996 Casey has to added hundreds of millions of dollars to businesses. Watch a free video see client results Business Coaching website. - Visit Casey Gollan's Website |
|||
Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
|||
Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
|||
David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
|||
Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
 | |
|  |
Subscribe to Dennis's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
|
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Instant Business Letter Corporate Secrets Reference Check Form Sale Systems Relationships and Referrals |
|
 | ||
 |
Top 50 Marketing Blogs
Top Blogs To Watch In 2008 | |
 |
Top 50 Marketing Blogs
Top Marketing Blogs of 2009 | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
