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CHECKING OUT A TARGET BUSINESS
A. COMPANY ASSESSMENT
1.
Before you buy a business it is important to pre qualify it.
2. The success or failure of a company is usually based on a combination of
unique things that make the company different from all others.
3. Do not take the sellers word regarding what made the company successful as the seller might not
even know the unique combination of people, products, luck and timing or other characteristics
that made them succeed where others might have failed.
4. It is important to remember that a growing company needs adequate finances to pay for the growth.
Rapid growth with insufficient financial gravity has put more than one company
out of business.
5. Before buying a business try to obtain financial statements from the past 5 years, so that
you can determine the financial trends of the business.
6. It is important to determine who owns the company ( ) on buying. find out information about
the board of directors such as whether they are owners and how long they have been on the board.
7. Determine who actually runs the business, it may be an employee so learn as much about the
company as you can.
8. Litigation of any sort will offset the financial assessment and must be
discussed in any negotiations.
9. For advanced technology companies the value of intellectual property needs to be considered.
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B. COMPANY ASSETS
1. Marketing positioning determines the marketing philosophy of a company.
Understand it and you will better understand the company.
2. Purchasing a growing company in an expanding market is almost always a good thing.
3. The customers are the most important asset of a company. Acquire detailed knowledge of the customer
base and you will more clearly understand a company’s marketing operation.
4.Detailed work has to be spent analyzing the competition in your market area. For example, what are the
relative sizes, strengths and weaknesses of the competition compared to the company being purchased.
5. It is important to understand the products and services that a company offers and how they are sold to
customers so as to ascertain the sales and marketing philosophy of the company you are about
to purchase.
6. Different companies provide sales and marketing services through a variety of channels such as :-
- Direct Sales- Where sales are transacted
directly between the company and its customers.
- Distributor Sales- An intermediary
company that purchases products from a company and then sells
those products either directly to customers or to further
intermediary companies.
- Manufacturers Representatives are sales
assisted companies that handle the sales aspects of a customers
transaction in exchange for a percentage commission based on the
total sales.
- Online sales are transacted
electronically usually over the internet.
- Mail Order- sales activity that happens as a result of a catalogue or other flyer sent to a customer who then
makes the purchase decision and then purchases the desired items using the mail.
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C. COMPANY FRANCHISES
A franchise can be described as follows:-
1. A company develops a successful method for performing a specific job.
2. The company then standardizes its methodology under a legally protected brand name.
3. The company prepares a set of franchise agreements and performs the required legal filings with every
state in which it intends to sell franchise locations. It will be officially recognized as a franchiser
at this point.
4.Interested parties purchase a franchise to offer these specific services or products in a given area.
Once the purchase is completed, the buyer is then known as a franchisee.
5. The franchiser then provides various benefits to the franchisee, such as financing assistance, volume
purchase pricing, national advertising, training and business location research.
6. Franchisees pay a franchise fee to the franchiser, which is usually based on a percentage of its sales
revenue. This fee relationship usually continues for as long as the franchise is in operation.
7.It is usually less risky to start a franchised business than an independent one. This is especially
true if you are not an expert in the chosen business area.
8. The Federal Trade Commission regulates franchise operations in all 50 states and requires specific
disclosure filings from any franchiser before franchise sales can begin.
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D. PURCHASING COMPETITORS
1. Purchasing any company is a complicated process. Purchasing a competitors, or being purchased by a competitor
is a special case which requires the disclosure of information that would not be revealed under normal
circumstances.
2.To ascertain the buyers sincerity, it might be wise to ask some of the following questions:-
- Is there an obvious synergy between the 2
companies.
- Does the buyers management have a history
of purchasing its technological or market expansion as opposed to
developing it internally.
- Does the buyer have the money to make the purchase.
3. When negotiating with a competitor it is more likely than not that you will share customers. The customer
information should not be revealed too early in this process, although it will have to be
revealed eventually.
4. Both the buyer and the seller should sign a non-disclosure agreement that limits either side from using
the revealed customer information.
5. In order to make an estimate of future sales levels a regression analysis can be made based on past historical
information. The procedure, usually performed on a computer determines an equation that matches existing
data and then mathematically estimates future values.
6. Selling the customer list, along with a non-competitive agreement, may serve both the sellers and the buyers
objectives. The seller is served in that its most valuable asset is sold at its highest possible price, its
customers are taken care of and future customer responsibility has been transferred to the buyer.
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