7 Reasons Why Your Business Will Never Be Acquired and What You Can Do About It (Infographic)
In my career as a broker for website sales, I have met only a few entrepreneurs who didn't dream about having their businesses acquired. Among entrepreneurs, that goal seems to be something of a shared dream. But few take any steps to actually position their business to get there.
Related: Make Your Own Luck and Get Acquired
Rather, most entrepreneurs simply go about their business and consider acquisitions something they'll only read about posted on websites like entrepreneur.com.
This is unfortunate, as actively positioning your business to be acquired is not difficult to do. One effective approach for starting out, for example, is to analyze your business in terms of the various reasons an investor would give for saying no to acquiring it.
This approach is effective because it relates directly to a basic law of business acquisitions: Those actively looking to buy a business are always looking for a reason to say no. This may imply an attitude of a "glass half empty," but the reality is, most companies or investors don't have the luxury of making mistakes with their acquisitions. That's why smart business owners work at understanding why, exactly, buyers do say no, and why they're always on the lookout for the warning signs of things that could go wrong.
Once you, the owner, know these warning signs, you can leverage that information to make your own business more desirable.That's why I suggest that owners first analyze the reasons a buyer might pass on their businesses, and place those reasons into one of three buckets: things they can easily control, things that are somewhat in their control and things they have no control over.
Certainly there are dozens of reasons buyers could say no, but seven fundamental reasons consistently take the prize as the primary problem points for businesses beginning to think about acquisition. Luckily, these seven points are all in the “things you can control” bucket:
1. Keep clean financials.
Messy and inaccurate financial records are the most common cause why acquirers back out of an acquisition, and this is a factor entirely within your control. Keep clean financial and tax records, or hire a rockstar bookkeeper who will keep everything clean, tidy and verifiable.
2. Track your metrics.
Buyers expect you to know your business, and to have data to back up what you know. For example, every online business should have web analytics software installed. Buyers of online businesses will typically pass on an acquisition if they can't view basic metrics.
3. Watch out for vendor instability.
Buyers commonly look for "single points of failure" in a business. What happens if your primary vendor disappears or drastically changes his or her terms? How does that impact your business? Always have backup vendors. If possible, diversify your product sources among multiple vendors to reduce over-reliance on one source.
4. Make sure you are trustworthy.
You may wonder what your trustworthy score has to do with your business being acquired, but buyers are always looking for reasons they should say no. If a buyer does not trust you, then he or she may not trust what you say about the business. Sowing seeds of distrust can be done in a lot of ways: telling white lies, missing scheduled appointments, or not fulfilling promises, or even appearing disorganized and unknowledgeable about your business.
5. Have multiple sources of revenue.
Vendors aren't the only place a buyer looks for single points of failure. Your revenue sources also present a potential source of instability that could have a buyer passing on your business. Does most of your revenue come from one product or service? Is your business predicated on a strong ranking in Google? These are all reasons a buyer might say no to acquiring your business.
6. Make sure the transition path to new ownership is not difficult.
An acquirer is likely to pass on an investment if there is no clear path to transitioning ownership of the company, or if that transition requires significant additional investment. Ensure that key employees are replaceable (and that includes you as the owner).
7. Make sure your business isn't in disrepair.
While many acquirers look for distressed sales, these acquirers usually want a bargain price for their acquisition. Most acquirers will say no to an acquisition if they anticipate the need to invest significant capital into a "fix-up" project, following the acquisition. If your passion for your business is waning, seek an acquisition before the business falls into a state of disrepair.
My business Quiet Light Brokerage has available an infographic using data we've collected from successful and failed acquisitions to break down more than 35 common reasons acquisitions fail. Work your way through these reasons and place them within your own buckets of "controllable," "not controllable" and "somewhat controllable" for a customized analysis of your business's acquisition potential.
With this analysis completed, you'll develop a quick checklist from which to set goals and action plans, to begin positioning your business for a successful and profitable acquisition.