Are you ready to buy a business?
Below are six questions to help you find out.
These questions are tailored specifically for the individual executive seeking to acquire a business (a different set of questions should be asked by corporate buyers). If that’s you, take some time to consider these questions.
When you’ve answered them, you’ll be a whole lot closer to being ready to buy a business.
1. What industries are you targeting?
Ask yourself what industries you will pursue, what industries you won’t pursue and what industries you’d prefer. Generally, the broader and more inclusive you’re willing to be here the better your chances of finding a business and closing a deal.
2. What geographic area are you targeting?
As with industries, seek to define what geographic area you will pursue, won’t pursue and you’d prefer to pursue. Many individual executive buyers have relatively strict geographic limitations and that’s ok.
3. How much money do you have?
A good rule of thumb is to have two to three times your desired salary in cash. Being well capitalized is an important factor for becoming legitimate in the eyes of business owners that might consider selling and for gaining their trust.
4. Are you willing to personally guarantee debt?
Many individual executive buyers finance their acquisition deal with loans from the Small Business Administration (SBA). The SBA requires a personal guarantee from anyone with ownership at 20% or greater.
5. Is your network good enough to source deals?
Unless you are engaged with M&A professionals, your network probably isn’t suited for deal sourcing. Finding a good team to surround you in this process is vital for much of anything to get done in this process- don’t go at it alone!
6. How much time do you have?
Most of our individual buy-side engagements take six to nine months. If you are hoping for something to be done in 90 days, you should consider searching for a job instead.
Be sure to sit down with your family, your business partners, your advisors and mentors to gain their insights about these questions as well. The purchase of a business is not just a financial decision- it will change the way you and those close to you live. Are you ready for it?