Around the Web: A Week in Summary
A recent article from Entrepreneur.com entitled “Why the Best Businesses for Sale Aren’t for Sale” discusses the reasons why business owners should consider making an offer to buy another business, even if it’s currently not listed for sale.
Starting a new business from scratch is a lot of work and can be frustrating trying to grow past the competition. The other option available is to purchase the competition and speed up your growth. When looking to purchase a new business, the market can be full of businesses that people don’t want for some reason, and it’s not always because the owner is simply looking to retire. Alternatively, the specific type of company you wish to acquire in order to build your entrepreneurial empire may not be one of the options of ‘businesses already for sale.’
Get specific on the type of company you’d like to buy, find it and consider both your personal spending limit as well as what the company would be worth to the current owner. If the business isn’t for sale, make an offer anyways. You may receive an acceptance for your offer, or you may end up in negotiations. The first option is not unheard of.
A recent article from Axial entitled “Too Much Customer Concentration at the Top Can Ding Your Value in an Acquisition” explains how having the majority of your sales come from a few customers can affect your business’s value.
Having the majority of your business income come from a few top customers can impact your business negatively because it means if something happens to their business, the same thing happens to yours. Alternatively, having a heavy concentration at the top of your customer list can be a good thing if they’re predictable and pay on time. It may even mean that you have a client base that is easier to serve. A general rule of thumb is that no one customer should represent more than 10% of your business.
When bringing your company to market, including a customer concentration report in your Informational Memorandum (a.k.a. “deal book”) is crucial because the potential acquirer is going to want to review what percent of your business would cease if you lost a few of your biggest customers.
A recent article from Axial entitled “Finding the Right Acquirer for an Employee-Owned Business” explains how a Colorado-based employee-owned company went about finding the right business to acquire them.
Rapid Production Tooling was founded by seven individuals who had a negative experience working for a company that was acquired while they worked there. Therefore when they decided to sell their company twenty years later, they were careful when considering any potential acquirers. In the end they decided to accept an offer from a company that was in the same industry, but whose business complimented their own rather than providing the same products. They also were specific in choosing a company that had similar values and beliefs as the one they had built themselves.