Generally, most entrepreneurs, when starting a business, prefer to start a business from the start. Few people face the challenge of buying a business when they go to start a business.
When you have the resources, buying a business is an interesting and attractive way to start in the business world.
The purchase of a company is a decision that requires in-depth analysis to minimize the risk involved in a decision in that regard.
The chances of success are greater when you buy a business within the business that you already know or have experienced collaborators to manage and operate the company with efficiency and effectiveness.
It must be emphasized that the purchase of a functioning company does not always ensure success.
Depending on the size of the company, the intervention of specialists in the different areas is required to have expert opinions on the course of business and consider the different variables to make the best decision and have greater certainty that a good decision is being made. purchase.
Using expert advice that knows the type of business you want to enter is very convenient to reduce the learning curve, which always has a cost and can be very high.
Defining the real value of a company is not easy. There are many variables that must be deeply analyzed, since the way of managing the administration, operation and accounting of each group or entrepreneur is different.
It is essential to analyze the accounting, administration and operation of the company with the experts to know with certainty the value of what is being purchased.
Basing the economic, administrative and technical viability in the purchase of a company is vital to be able to make a correct decision.
Before closing the purchase it is necessary to review and validate the information, meet the staff and inspect the company to verify exactly what is being purchased.
It is also convenient to have a defined strategy of what is going to be done with the company, how it is going to be managed and operated, what is going to change and what it is intended to do to have more quality, better results, make it more competitive, profitable and successful.
When the purchase is made, it is advisable to let the company work as it has been doing, for as short a time as possible, to learn its internal workings and learn about the characteristics and activities of the staff.
It is advisable to keep the staff working in the company for a period to evaluate its efficiency and effectiveness, take advantage of their experience, learn the secrets of it, decide who stays, not lose the inertia of the operation and have enough time to train the new entry staff.
It is advisable to conduct interviews and work meetings with the key personnel of the company the first days after the acquisition, in order to know how they feel about the new administration, what recommendations and observations they would like to make and what their main functions are. This is vitally important.
In key positions it is advisable to have trusted personnel as soon as possible.
You have to consider that buying a company has advantages and disadvantages and that there is always a risk that a good purchase has not been made.
On some occasions, it is preferable not to buy the company due to your tax or employment situation and it is a better decision to acquire only the assets, facilities and locations.
Knowing the real reasons why a company is sold is important for making a final purchase decision.
When undertaking business sales activities, it is required to sign a confidentiality agreement to prevent employees and the competition from learning about it and generating subsequent difficulties.
A stage of investigation and confirmation of the information requested from the company is required for analysis and small audits are carried out in the different key areas to confirm the veracity of the information.
There are specialized companies that have expert staff to fix troubled businesses and are dedicated to buying running companies.
There are entrepreneurs or executives who believe that they can enter any business and be successful, and this is not always true.
"It is better to buy a more expensive company that can be successful, than a cheap one that complicates the possibility of being a good business"
Reasons why a company is bought
- Expand geographic coverage or location Expand distribution channels Increase customer base Complement products and services Complement administration, operation and marketing systems The benefit that can be obtained from your fiscal situation Enter a new market.Increase market share.Integrate a competitor that is affecting the market.Make savings in costs and administration, operation and marketing expenses.Have the latest technology to be more competitive.Have better equipment and facilities.Have experienced personnel.
Generally, you have the following advantages when buying a running company, although sometimes this is not the case.
Advantage
- It is generally cheaper to buy than to develop a company. The staff knows their functions and has experience. There is a portfolio of clients. There is an established brand, prestige and know-how. The facilities have already been adapted to the needs of the operation. It allows to have a cash flow from the beginning. It allows to assess the viability of the project since the historical income and expenses are known. The profits can be increased more quickly. There are ongoing contracts and recurring sales. You know the credit, discounts, additional services they offer. You have providers. You have a constant clientele. You know the success of the locations. You can design a transition plan.
You have to verify that the advantages are realistic and consistent with the administrative, operational and accounting situation of the company you plan to buy.
"A well-run operating company increases the chances of success for the entrepreneur"
Disadvantages for the new entrepreneurial owner
There are also companies that when they are bought running have certain disadvantages:
- Changes in laws and regulations in the area that affect the company. The existence of unknown problems with the community in the area. The image and prestige of the previous owner. That there is state-of-the-art technology that endangers the system that the company has., make it obsolete and uncompetitive. That the competition has very bold plans that the new owner does not know. That the company is at the stage when its image and prestige begin to decline. That the information provided by the previous owner is falsified and Not detected until after purchase Lease contracts have trouble renewing Conflicting relationships with suppliers, customers, staff, bankers, authority and others are inherited Possible negative staff attitude when new policies are implemented and procedures.
Thorough research of the above points is required before closing a purchase to avoid having unpleasant surprises.
Comprehensive diagnosis for the purchase of the company
It is necessary to have a comprehensive diagnosis, as closely attached to reality to know that you are buying.
You can hire companies that have expert consultants in the preparation of comprehensive diagnoses with the approach required to know the convenience of buying a running company.
Variables that must be considered in the purchase of a company
- Who are the partners and what is their history? Why are they selling it? What is the value of the company? Market value of what they are trying to buy? Strengths and weaknesses of the company. Efficiency in meeting objectives and Goals. Growth opportunities. Who is and how the competition is. Required capital and cash flow (quantity and time). Quality and experience of personnel. Efficiency in operation. Amount of annual sales and market share the last 5 years. Sales divided by division, products and / or services increase, decrease or remain the same.
- Profit margin with which it has been operating for the last five years Situation of machinery and equipment Conditions of real estate and fixed assets in general The reputation and image of the company and its products and services with customers and society in general.The reputation of the company with the businessmen of the field. Situation and image with the important suppliers. Situation of the different credits that are held. Financial, fiscal, labor and legal situation in general. Accuracy and coherence of the information in General Location and visibility Good relationships with financial institutions you deal with Conditions of leases and special contracts
To prepare the comprehensive diagnosis it is necessary to have the following information:
- Corporate information. Purchases and inventories. Sales and marketing. Finance and accounting. Personnel administration. Movable and immovable property. Insurance and Bonds. Mexican Institute of Social Security. Guarantees. Commitments and contracts. Agreements with strategic alliances. Contracts with financial institutions. Information on expansion plans and positioning of the competition in the business.
Information and aspects in which there may be problems and differences
- False corporate, tax or financial information. Unreported debts to shareholders, suppliers or financial institutions. Sales without vouchers. Fictitious purchases. The way to calculate and pay taxes. Payments of wages and fees outside the formal payroll. Sales without vouchers. Proof of false expenses. Age and operation of machinery and equipment. Hidden problems in the buildings or facilities. Poorly counted physical inventories. Information on losses greater than reported. Personnel provisions and antiquities.
Therefore, the financial statements or other reports and reports may provide inaccurate information.
"It is very risky to buy a company if you do not have the right staff, if you do not have a deep understanding of the business, the market and the details of the operation"
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www.ciemsa.mx
@jackkmex
Article from the book “Dare to be an entrepreneur” 2018 Jack Fleitman
