Ready to take your empire to the next level by acquiring another venture? With revenue stagnation affecting more and more businesses, rising costs and the cost of capital being at an all time high, making sure you understand the fundamental elements of the journey you’re about to embark on, including the emotive elements, is key to long term success.
In a world of ever-shifting bottom lines and unpredictable costs, making savvy decisions is crucial. Fundamentally Cash is King—No Excuses! When it comes to business, you’re either stacking up the dollars or you’re not.
Let’s dig into some crucial questions that are more than worth your attention.
1️⃣ Know The Business Story of your Target
First up, what’s the legacy of the business you’re eyeing? Are we talking a solid revenue generator, a chess move to gobble up market share, or maybe a synergistic power-up for your existing operations? Gauge the performance metrics and fit for your ambitions. If this business has been mediocre historically it is extremely unlikely that it will suddenly become a winner overnight.
2️⃣ ROI: What Does the Target Owe You?
When you fork over the cash to make this business yours, what’s the timeline for that money coming back to roost? Grasping this will not only keep your financial advisor smiling but will also make sure you sleep better at night. After all, no one likes buyer’s remorse!
3️⃣ Who’s the MVP? Who is Driving a Result?
Understand who drives success in the business and whether there’s a key person risk lurking in the shadows. Will you be taking over from day one or is there an earn out period to consider? Systemised scalability that comes with the acquisition should also influence your valuation. My rule of thumb: small, people-dependent businesses should cost you sub-2x EBIT; medium ventures with some systemised scale in play sit around 3-4x EBIT, and a fully scalable operation can command a 5x EBIT or more. Buy right at the start and you’re 80% there. Need more evidence – tune in to ANY shark tank episode.
4️⃣ The Trend Radar
Industry and growth the target business is the last fundamental element to be considered. Just because there is a hot topic though, do not fall into the trap of thinking this will deliver guaranteed success. For example, AI is a hot topic right now. Just because a business incorporates AI into their organisational systems doesn’t automatically increase the value. Knowing where the macro industry trajectory is headed, and how you can leverage the opportunity will significantly support your ROI.
Ready, Set, Buy!
Acquiring a business can feel like juggling flaming torches while walking a tightrope. It’s thrilling but risky! That’s why doing your homework makes all the difference. You’re not just buying a business; you’re setting the stage for your next big win.
Excited to make your next power move? We’re cheering for you. Happy hunting!
