Building credibility for business ownership

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DRJOHN2Dr. John Psarouthakis, Executive Editor, Founder and former CEO, JP Industries, Inc, a Fortune 500 industrial corporation. Adjunct professor, Strategy and Acquisitions, Ross School of Management, University of Michigan

This is the 4th of short articles of my thoughts about Acquisition
of a business.

Credibility is a very important aspect of success in purchasing a company. Many of the issues important to establishment of credibility for one constituency may also apply to some of the other groups. Looked at altogether, the following issues are likely to help you to establish trustworthiness and believability in your proposed venture with the business community and the community at large:

1)    That you are serious enough about making the deal that you are devoting significant resources and effort to this venture. If you are a first time buyer, full-time dedication to this venture will contribute positively to your image.

2)    That you have reasonable qualifications for running the business, such as an M.B.A., appropriate work experience in a related industry and/or directly transferable management experience.

3)    That you are clear about your vision for the company and can communicate why you will be more successful than the present owner in the case of an underperforming firm, or at least as successful as the present owner in a well performing firm.

4)    That when approaching the bank for a loan, you have the necessary amount of equity to support the loan.

5)    That you have equity partners who are considered credible themselves, either as savvy, experienced business people and/or as investors in previously successful deals.

6)    That you have a plan for paying off the loan, either through cash flow from the company, by eventually selling the company for a profit or by taking the company public.

7)    That you have an exit strategy for investors which will provide them with a significant return on their investment.

8)    That you are able to finance the deal, usually as evidenced by a letter of understanding from the bank.

9)    That you know how to make the deal, showing a clear understanding of the different steps needed to conclude the sale

10)That, especially in the case of the seller, you will treat employees fairly; and

11)That you are able to communicate clearly, to bankers, brokers, employees and others, what you plan to do and how you plan to do it. This should include an initial business plan that clearly spells out why you are doing this, what type of business you plan to buy and how you plan to find the right company.

Reference: “How to Buy the Right Business”
by John Psarouthakis and Lorraine Uhlaner


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