The most costly buyer mistakes are revealed in an exclusive video interview with Rob Goddard of Evolution Complete Business Sales.
The transcript of the interview follows:
What are the most costly mistakes that a business buyer can make?
I think to buy a business that doesn't work out.
If you look on the internet you'll find that the failure rate of an acquisition is between 50% and 80% in this country, depending on what sector you look at, within 5 years of the acquisition taking place.
It's a high-risk strategy - where it works, it works extremely well.
And there are all sorts of reasons why that failure rate is so high in this country.
One of the things is buyers don't take advice from professionals that are in the sector.
Another reason is they don't do their due diligence properly. Because most people who are selling probably won't tell you everything about their business. It's like selling a second-hand car. They will tell you all the nice bits, all the bits that work well. What they often won't do is tell you the things they are not happy with, the things that don't work well. It is the buyer-beware aspect. And there's a high failure rate.
Another costly mistake is buying a business for ego. It's a no-no in terms of acquisitions.
Just because you have the cash to buy something doesn't mean you need to buy it. It's got to fit with your strategy for your overall business. Buying the wrong business, at the wrong time and for the wrong reasons is probably the most costly mistake a buyer can make.
Just because you can doesn't mean to say you ought to.
What can be done to prevent these mistakes from happening?
When you've got several million pounds to spend or more, if you're in that lucky position of having surplus cash, just because you've got the cash to spend, spend it wisely and make sure it's in keeping with what you want to achieve with your main business - otherwise it could be a very costly distraction.
We try and find out: why do they want to buy? Why do they not just set up in competition with existing players in the industry? We want to tease out their motivations for acquisition. Increasing turnover shouldn't be one of them - it's the old adage of turnover is vanity, profit is sanity. If you make the wrong acquisition your bottom line could go through the floor. Don't buy the wrong thing for the wrong reason.
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View the first in our video mini series - The most common hold ups in a business acquisition here.
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