When you think of growing your business you think of working from the inside right?
What about working from the outside? Have you ever thought about buying an existing company?
Ken Bohenek is a seasoned business broker who has guided countless entrepreneurs through the complex maze of business acquisitions.
If you’ve been looking for ways to expand your current operation, this episode will arm you with the know-how to make smart, strategic decisions that protect your financial future so you can buy a business without falling into costly traps that could sink your investment.
You’ll Learn…
- Why business valuation matters beyond just looking at revenue numbers
- How to buy a business by understanding critical financial due diligence steps
- The one thing that can kill a business acquisition: lack of financial transparency
- How to buy a business by preparing your personal financial documentation thoroughly
- Why strategic buyers should carefully examine a company’s customer base and culture
- The importance of different business sale structures like asset versus stock sales
- Why working with a business broker can help navigate complex acquisition negotiations
Key Moments…
[00:01:08] | Exploring Business Acquisition Pros and Cons
[00:04:14] | Strategic Buyer Considerations and Benefits
[00:10:36] | Due Diligence Process for Business Purchases
[00:21:33] | Normalizing Financial Statements for Valuation
[00:30:58] | Preparing Financially to Buy a Business
[00:38:06] | Understanding Business Pricing Strategies
[00:39:29] | Seller Preparation for Business Sale
Exploring Business Acquisition Pros and Cons
When considering how to buy a business, it’s crucial to understand the potential advantages and challenges of business acquisition. The current economic landscape presents unique opportunities for entrepreneurs looking to expand or enter a new market. Buying a business requires careful consideration of the current economic conditions and your specific business goals. Many business owners find that acquiring an existing business can be a faster route to growth compared to starting from scratch. You can leverage an established customer base, infrastructure, and proven operational systems.
Strategic Buyer Considerations and Benefits
As a strategic buyer, buying a business becomes about more than just acquiring assets. You’ll want to look at how the potential acquisition can complement and enhance your existing operations. Think about the strategic advantages beyond immediate financial gains. This might include accessing new customer segments, acquiring specialized talent, or eliminating a competitor. The process involves carefully analyzing how the new business can create synergies with your current operations, potentially reducing shared expenses and creating opportunities for immediate operational improvements.
Due Diligence Process for Business Purchases
The due diligence process is critical when determining how to buy a business. You’ll need to dig deep into the potential acquisition’s financial health, operational systems, and cultural fit. Buying a business successfully means thoroughly investigating every aspect of the company, from financial records to employee dynamics. This includes examining software systems, customer lists, and potential hidden liabilities. Don’t rely solely on surface-level information or long-standing relationships. You’ll want to verify financial statements, understand the company’s customer base, and assess the potential cultural integration challenges.
Normalizing Financial Statements for Valuation
Understanding how to buy a business requires a clear view of the company’s true financial performance. Financial statements often include discretionary expenses and personal costs that need to be understood to get an accurate value of the business. It means looking beyond the surface-level numbers and understanding the true cash flow of the company. You’ll need to work with professionals who can help you identify and remove personal expenses, creating a clear picture of the business’s actual financial performance.
Preparing Financially to Buy a Business
Financial preparation is crucial when considering how to buy a business. You’ll need to have your financial house in order, including a clean personal financial statement, strong credit, and readily available cash. Be prepared to provide detailed financial information and have the resources to move quickly if needed. This includes having cash ready for deployment, understanding your borrowing capacity, and keeping a financial cushion that demonstrates your ability to complete the purchase.
Understanding Business Pricing Strategies
Pricing is a critical component of buying a business. You’ll need to understand that business valuation goes beyond simple revenue numbers. Knowing how to buy a business at the right price requires understanding the nuanced approach to a business’s valuation, which typically means analyzing normalized cash flow and considering the value of both tangible and intangible assets. This helps you understand the true earning potential of the business.
Seller Preparation for Business Sale
If you’re considering selling your business, preparation is key. From the seller’s perspective maintaining clean financial records, ensuring consistent profit margins, and creating a business that stands on its own merits will be key. You’ll want to ensure your business maintains competitive pricing, watches margin erosion, and presents a clear, attractive financial picture to potential buyers. This includes maintaining proper lease arrangements, even if you own the building, and keeping detailed, accurate financial documentation.
About Ken:
Ken Bohenek is a business broker in the Coeur d’Alene, Idaho area for Murphy Business and Financial Corporation. As a former business owner Ken came to Murphy with a desire to assist other business professionals. Having been previously involved in the transfer of businesses within his family and friends, he recognized the importance of having a qualified broker involved. Ken comes from a family of entrepreneurs in businesses ranging from bars, restaurants and a plumbing & heating company established for over 38 years. In his spare time Ken enjoys staying active and is an avid high performance automotive and motorcycle enthusiast.
Connect with Ken:
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