Tag Archives: due dilligence

WHO BUYS COMPANIES AND WHY

If you are buying a business for the first time, you will find that buying a business is a unique experience that requires extensive knowledge and skills in a broad spectrum of areas–legal, accounting, banking, financing, understanding of government regulations, especially in areas of environment, safety and employee relations.  You must learn how to obtain and screen leads, how to evaluate and price prospective companies, and how to conduct due diligence. But even highly experienced entrepreneurs who have completed dozens of deals still rely upon professional expertise for certain phases of the process.  Thus expect that even after you learn more about the deal-making process, you will still need to hire consultants to assist you in making a successful purchase.

Buying a company is very demanding because it is an intellectual, pragmatic and emotional process, all in one. It is an intellectual process because to be successful you have to think it out.  It is a pragmatic process because you have to be realistic about the company you are looking to buy, whether it is worth buying, what its real value is, and what it should be priced at. And buying a company, finally, is an emotional process.  Throughout negotiations, beginning with first contact with the seller and continuing through to the closing of the sale, you experience tremendous highs and lows. You must be able to handle both extremes of emotion. You must handle the highs, so as not to reveal your enthusiasm to the seller, and after the lows, to be able to come back and find a solution to the problem that might otherwise kill the deal.  The emotional component holds true even after many deals but you do learn to control those emotions with practice.

Reasons for Buying Your Own Business

Some of the reasons for buying your own business are similar to those of any entrepreneur: to control your own destiny; the personal challenge, making money, the satisfaction of building and running something on your own. Continue reading WHO BUYS COMPANIES AND WHY

Preliminary due diligence

JP Bio PhotoDr. John Psarouthakis, Executive Editor, www.BusinessThinker.com. Founder and former CEO, JP Industries, Inc, a Fortune 500 industrial corporation. Adjanct professor, Strategy and Acquisitions, Ross School of Management, University of Michigan

This is the 6th of short articles of my thoughts about Acquisition of a business.

This brief article reviews the important step of preliminary due diligence that takes place once a confidentiality agreement is signed and you are satisfied that the acquisition prospect meets your major criteria. The preliminary due diligence has three important aspects, a meeting with the seller, one or two company visits and a preliminary review of documentation. There are four key goals in the preliminary due diligence phase. They are:

  1. To determine whether this company is what you want to buy (barring any unexpected “skeletons” you might uncover during formal due diligence) ?
  2. To determine price you want to offer in your letter of intent
  3. To determine whether the seller is serious about selling and why
  4. To develop rapport with the seller

Continue reading Preliminary due diligence