The following are reasons why you won’t buy a business. I am not saying you won’t buy a business, but if you don’t these will be some of the reasons why and here are some of specific obstacles that will stop you.
There are many checkpoints along the path of business acquisitions that can be viewed as pain points. These checkpoints are critical turning points where you have decisions to make. You realize that if you proceed forward, you will incur expense, time, and risk. Thus it will be easy for you to pull away and decide to do nothing.
Those checkpoints include making the offer, signing the letter of intent, engaging attorneys, agreeing to a financing package and a few others that are minor pain points. Typically the expense is the larger issue. Your reluctance to move forward can easily be tied to your reluctance to spend money. This is perfectly understandable, but you must know ahead of time that you will be confronted with costs that you did not expect.
Pulling the trigger
It is very difficult to pull the trigger in many cases. There are many forces working against you when buying a company. First of all it is very lonely at the top. You are jumping into an unknown and environment where you know nobody, incur much debt and are uncertain how to proceed in a brand new business.
Thus when you get to the point of no return, you will hesitate. What is the point of no return? The point of no return is when you will be stalled in your tracks for one of a various set of reasons all coming together at one time. The process seems daunting and insurmountable.
There also many excuses to bail yourself out of the deal. This is not a bad thing. If you get to the point where you do not feel right about the deal there is nothing wrong with bailing out. In fact I recommended in many cases. It is good practice to go through the motions of actually putting a deal together and then backing out. This way you do not incur extraordinary costs of doing a deal but you still get the experience.
And when the time comes to actually go through with the transaction and you really spend the front costs to get the Atty. A, accountant, and banking setup, you’ll be in a position of experience and can effectively follow through.
Fear – of making a mistake, commitment, success, failure
Fear leads to hesitation, hesitation leads to inaction. Every buyer has fear when confronted with a business to buy. Thus there will be hesitation. We might as well call it careful deliberation, that sounds more astute. This fear will squash more deals than you can count. You may as well get used to it. The fear will always be there because you will be taking on risk, debt a new job and a lifestyle change. So of course there will be fear
As it happens, fear of poverty is a stronger influence than fear of failure. There will come a time when your back is up against the wall and you will see what you are made of. The entrepreneur will perform under this pressure. Others will get a job.
Some people will be forever getting ready to buy a business and never will. You may not know who you are but figure it out. Recognizing this tendency is critical to your survival. If you really belong in a 9 to 5 job then do it. Your life will be a lot longer and happier.
Self Confidence – Am I good enough to run or buy a business?
You aren’t good enough yet unless you have done it before. But that is OK because people grow into it and thrive. You will be a rookie every day for quite a while. Embrace it, that is your chance to shine. You can talk yourself out of it but you shouldn’t, not because you aren’t good enough, but because the business may not be.
Self confidence is acquired with experience and you don’t have any. This is especially intense when you realize you are out of your element because the business does something you are not familiar with. Realize that managers are generalists and you are one of those. Unless you are a specialist, an engineer, a creative genius, a craftsman or an artist, you do not need to be familiar, you need to manage. In many cases you will not even have to manage but will simply be the owner.
Miscalculation – Not defining what you will buy, not defining how you will buy it.
Knowing what price you can pay. Knowing the sales and profit range of your target. Knowing how many employees it will have. Knowing how much money you can invest. Knowing how and where you will finance it. Knowing how much the seller will finance. All critical aspects of your deal that have to be defined ahead of time.
Never buy above your means. Never buy below your means. Understand what your means are. How do I know what my means are? Ah that is the magic question. Well we certainly can start by assessing what kind of company you think you would be happy running and reverse engineer a hypothetical deal for it. Above all stick to your sweet spot, or risk miscalculating.
Know the numbers, make sure you can at least develop a working theory about how the deal will be financed. That way you can proceed to line up the players and the financing along the way.
