Considering Buying A Small Business? 8 Tips To Help You Succeed

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With baby-boomers retiring, there is a growing need for business transition planning, with senior business owners willing to sell their small enterprise to the next generation of entrepreneurs. Acquiring an existing business represents several advantages, like expansion opportunities for your own company or an alternative to starting a business from scratch. For example my friend Patrick recently bought a small copy center with a couple of employees that he manages with a partner, while working full-time. He didn’t have to go through the hassle of opening a store, because he acquired a fully equipped one at a reasonable price. As I got interested in this approach, I reached out to a more seasoned entrepreneur, Hugo Dube, to talk about his own experience in small business acquisition.

Hugo launched his first Tech Company, ServLinks Communication, as a student in 1998, doing mostly web hosting. In 2006 he left his job to become a full-time CEO. Since then, he has been successfully running his company; he manages about 20 employees and serves clients in North America and Europe. Today Servlinks Communication offers services in Information Technology, Cloud computing and Software development.

His first acquisition was a security alarm company. At the time, he saw a lot of opportunity for synergy between that business and his and he was eager to implement new strategies within the company. However after significantly increasing the new company’s revenues within two years, he ended up selling back his shares due to differences with co-stakeholders from the previous management. Since then he has been much more successful at acquiring small companies, and here is his advice to help you start on this path:

  1. A business is worth investing in if:
    • It offers services that can complement your own company,
    • It has a good history of profits, in addition to sustainable revenues.
    • It provides a return on investment in less than five years
    • It has valuable assets like real estate
    • There is a potential for growth, but It should not influence the acquisition price
    • It is well located, in case the offices are part of the acquisition
  2. Platforms like acquizition.biz are useful but the best deals might not be public yet. Therefore, watch companies around you that are run by seniors, and show an interest in helping them in their business transition planning.
  3. Set up a small team of reliable professional advisors to get inside information on upcoming deals. This close circle should include your accountant, your bank account manager and a notary.
  4. Focus on small deals as a start (less than 300,000 USD), as this will limit your losses. Other mitigation options include investing with a partner or doing a partial acquisition by keeping the current management in place.
  5. It is advised to keep some continuity between the previous management and yours. This will help you establish your leadership smoothly.
  6. Stay on good terms with the previous owners, as they will ensure the buy-in of the existing staff. They can also act as mentors if you are not familiar with the industry, or facilitate the terms under which you may buy the remaining shares upon their exit.
  7. Sign a confidentiality agreement during the acquisition process
  8. Sign a shareholders’ agreement that includes exit provisions like a shotgun clause, protection against legal issues faced by previous shareholders and a life insurance.

 

Thank you to Hugo Dube, CEO of Servlinks Communication for his contribution to this article.

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