St.Louis Business Journal
PERSONAL ASSESSMENT BEFORE BUYING A BUSINESS

By Anna Navarro

July 1998  

Author's note: Client stories in this column are based on actual situations fictionalized to protect privacy and told with permission.

Deciding to buy a business is an arduous and risky endeavor.

It’s helpful to think of it as entailing several levels. If you answer the questions at one level affirmatively, you proceed to the next level. Each level requires the investment of more time and money than the one before, and each level affords you the opportunity to ponder whether it’s wise to continue.

The first level is assessing yourself personally. Are you capable to taking ultimate responsibility? Does running a business suit your lifestyle? Are you personally and financially capable of surviving a business failure?

If the answers to these questions are YES, you are ready to move to the second level. (For a more detailed description of level one, contact me at the phone number or e-mail address below)

The second level is getting ready to shop for a business. This level has three steps:

1. Decide how much money you can put up from personal sources such as savings, friends and family.

2. Develop a polished self-presentation, outlining your credentials and goals. This must be an oral presentation with a written version that can be left behind. You’re going to be meeting with a lot of people who must believe you’re worth their best efforts. This is your way of making the case that you are worth spending time with.

3 Set up a team for buying a business in advance of your shopping efforts. The best deals go through quickly and you’ll lose to someone else if you have to stop to interview and select lawyers and accountants before submitting an offer. You need an attorney who is skilled in business acquisitions and an accountant experienced in business valuation and due diligence. It is important that you like these people and trust them. Also, line up lenders, both institutional and private investors. While it’s unlikely you will receive funding without a specific deal, it is important to get your money sources in line before you start shopping.

The fourth level is actually shopping for a business. Sources include networking with attorneys, accountants, and trust departments of banks. Business brokers can play an important role, but be aware that some charge for searching in addition to a fee or percentage for the sale. Databanks and newsletters can also be helpful.

If you’re clear about the specific kind of business you’re seeking, you can cold call owners to see if they’re interested in selling. This can be a great way to find a good deal. This is the most time-consuming approach but has the advantage of being the one that will teach you the most about the competition.

An attorney who was bored with the law and was tired of the lack of control she had over courtroom schedules decided she wanted to buy a company in the design field. She had a passion for design, but no formal training. With excellent business development and people management skills, her strategy was to acquire a company and focus on the marketing and management aspects of the business.

She marched through all the level one and two activities and set up her team of advisors. Being an extrovert by nature, she decided to approach existing businesses personally after doing some background research on them. She wrote a letter first, then followed up with a phone call and, in situations where there seemed to be a mutual interest, a personal visit.

This process allowed her to search for a deal and to educate herself about the industry and competition while she was at it. Her initial list included over 30 businesses. Six responded positively to her inquiry. She seriously looked at two and eventually bought one. It took over a year, but her plan worked. She asked the right questions and she persevered.

Level four is personal evaluation. Once you’ve found an interesting deal, here are some questions to ask yourself as part of the personal analysis of whether buying this firm will make you happy.

1. What do the current owners do all day? Are they more hands-on than you want to be? Are they working weekends because they can’t find enough employees? Are they absentee landlords?

2. What functions would this business require you to fill? Would you be the chief salesperson? Would you be involved in operations at all levels?

3. What lifestyle does the firm offer? Look for quality of life issues as well as financial considerations. What are working conditions like? How are the hours? Is travel required on a weekly basis? Are there labor issues?

4. Is the firm a good match with the criteria you’ve developed for the optimum job?

Anna Navarro is the founder of Work Transitions, a nationwide career consulting firm that trains independent career strategists and consults with individual clients.

This column was originally published by the St. Louis Business Journal. The actual title of the column and date in which it appeared in the Business Journal may be slightly different from what appears on WorkTransitions.com.