Have you received a tempting offer to enter into a partnership or acquire an existing business?
Before you jump in on the bargain, you should first examine all aspects of the deal and verify its viability.
Do you truly understand the business?
Often entrepreneurs set out on a venture without fully understanding the professional side of the business. They trust their new partners and employees to know the subject well. However, entrepreneurs who are not deeply familiar with their new operation may be exposing themselves to risk. If they are unable to spot problems and glitches, be they day-to-day issues or extraordinary events, the results can be devastating.
Have you performed a thorough analysis of the market?
It is important to identify competitors and to understand the business and its products well by asking questions such as:
• Is there demand for the product?
• Will this demand be maintained for at least the next 3 years?
• Is it possible to develop new products?
• Are there any regulatory/environmental restrictions on business activity?
• Are changes in geography, logistics, or demographics around the business expected to affect its operations?
Have you performed a financial feasibility study for this business?
When weighing the economic viability of a business, a number of key points need to be reviewed:
• What is the turnover today? How stable or volatile is it?
• Does the turnover depend on specific customers?
• Is it possible to increase turnover and what would be the costs?
• If you fail to increase turnover, can the business survive?
• When was the business established, and what has its situation been in recent years?
• Have all the expenses related to the business been recorded in the books?
• Which commitments are still outstanding?
• Are any of the owners’ personal expenses being covered by the business?
• Is the enterprise profitable thanks to a one-time activity but suffering losses in its main line of business?
• What items make up the fixed expenses?
• Are there any lawsuits pending against the company?
• Are all compensation and benefits being paid to employees on time and under the agreed contractual terms?
• We strongly recommend building a budget that includes all the desired changes and adjustments.
Have you performed an operational feasibility study for the business?
• Are all the necessary types of insurance in place?
• Are the work processes appropriate and effective? Can they be improved?
• Is it necessary to renovate the facilities or to change their location? What would be the costs?
• Are the employees working optimally? Are personnel changes required and at what cost (compensation, training)?
• Does the website need to be upgraded or anything else in the marketing function, and what would the costs be?
• Agreements with suppliers should be examined – Are we tied down to a particular supplier or to increasing future payments?
• Agreements with customers must be examined – Have any long-term agreements been signed in the past that are incurring losses?
• Is it possible to increase revenues?
• If the business is dependent on one or several customers, it is recommended to meet them and make sure that they stay on board following the change in ownership.
• Are our prices competitive in the market? Is there any room to increase them?
• Is there physical distance between you and the business’s location? It is not possible to run a business over security cameras.
