Our Process
We were recently offered a business to buy out 100%, and it did look to be of some interest. So we started by applying our three main filter criteria:
- What are our requirements? Is this business in a sector that we have some knowledge and experience in? Is it something we can add value to by introducting new processes, systems, people, partnerships, or marketing? Does it provide synergy gains with an existing business? Do we gain a valuable pool of customers we can cross sell to?
- A Committed Seller: how committed to selling is the current business owner? What is their rationale and motivation in selling the business?
- Financial Profile: how do the Income Statement, Balance Sheet, and Cashflow stack up? Is the business facing cashflow issues? Is there a debt problem? How stable is the revenue and profit? What are the trends in the market the business operates in, and what are the trends in the business itself?
And the outcome?
We quickly established that we could give a tick to criteria 1 and 2.
We felt confident we could add value to the business with new processes and systems, initially by improving the internet presence and adding ecommerce.
It was also apparent that the seller is very committed, and indeed has set a deadline to either sell the business or close it down due to the need to retire.
On point 3 however, we established that the business did not meet our requirements. It was struggling with top-line revenue and bottom line profit. The balance sheet looked satisfactory in terms of no major liabilities or debts being carried, but there were few significant assets either. And cashflow was not healthy.
So this became a case of “let it through to the keeper”. Hopefully the vendor can find a purchaser that can see value in the business, and they both can celebrate the deal. However, it is not one that fits our criteria.
