Acquisition Aces - Issue  #10 - Read Time - 3.5 minutes

How Research Helps You Avoid “Chlorophyll” In Business Acquisition

In 1957, Albert Camus was the second-youngest recipient of the Nobel Prize of literature at 44 years old.  I am not a huge fan of his philosophical takes (avoid) but there is a quote of his that is really good about this time of year.  He said, “Autumn is a second spring when every leaf is a flower.” 

Watching the leaves turn every year is one of my favorite things about the change of the seasons, especially in the Blue Ridge Mountains.  They run from Pennsylvania to Georgia and the colors in the fall are amazing.

Here is a fun fact:  Did you know that the fall colors are actually the natural colors of the leaves, and not due to decay?  Trees use Chlorophyll to turn sunlight into glucose, which then feeds the tree.  During the spring and summer millions of Chlorophyll cells fill the leaves.  This makes them appear green to our eyes.  In the fall, the trees stop producing this molecule and the leaves revert to their natural state.  If trees didn’t use this process the leaves would look like fall all year round.  They look like one thing but are in fact another. 

The Biggest Risk In Business Acquisition Is Not Doing Enough Research (aka Due Diligence)

The Blue Ridge Mountains are not the only place where things can be different than they appear.  Lots of deals look like one thing on the surface but are in fact quite another once you start to dig into the financials.  Most people try to portray an accurate picture of what they are selling but some people can get a little squirrely with the numbers.  The time to find this out is before the deal is done, not after.  

You would be surprised at how many people buy businesses with very little or no research.  This is a huge, but very preventable mistake.  The number one risk is not doing enough due diligence on every deal.  Yes, I know it can be tiring.  Especially if you had a few opportunities fall through but take it from a former Army intelligence officer, information is your friend.  It prevents you from making a rash decision, or getting carried away by emotions like “I’m about to close my first deal!”.  It is best to examine the situation through all moods and leave no stone unturned.  

Beyond the obvious advantages of making sure there aren’t any red flags, research also increases the likelihood of closing the deal even if you know the P&Ls are squeaky clean from the beginning.

Deep Knowledge Creates Perceived Competence

We’ve talked about this before, but most sellers look at the business as their baby.  They want to sell it to someone who will do a good job taking care of it and make sure that their employees still have jobs for a long time to come.  The relationships don’t end with the sale, so it is important to remember that it is not always only about the cash.  If you have put in the due diligence, it will show when you are dealing with the broker and the buyer.  The seller is more likely to want to get the deal done because they will feel that you are a credible and competent buyer.  

Also, this will make the broker’s job easier, and it will make them more likely to want to work with you on future deals.  Remember, you aren’t just doing work on one deal.  Everything you do impacts your future deals as well.

Competence Creates One Long Deal

Most people engage in Win/Loss thinking.  If a deal goes through, it’s a win.  If it falls apart, it’s a loss.  The challenge with this approach is that it inherently creates highs and lows.  A superior method is to think of everything as a process in one long deal.   Each minute you spend working on anything in acquisition is an investment into your future (including reading this newsletter by the way.)  Approaching things from this angle takes the sting away when things don’t go how you expect.  

As an added bonus, the more competent you get the more opportunities will be presented to you.  Over time, your portfolio will shift from deals you discovered to deals that were brought to you.  Process thinking will help you to continue to move forward until you get to this point.  It applies to every part of the deal, not just the research component.

For example, you can have perfected your research methods but it won’t do you any good if you don’t have the capital to close a great deal when you find one.  Watch this video to get a handle on how deals get funded:

If you conscientiously do your research, you will start to be able to see deals for what they really are and make great decisions.  Combine this skill with process thinking, and you will be an Acquisition Ace in no time.

Have a great rest of your week!

PS - Coaching compresses timeframes. If you want help finding the perfect deal for you, book a time on my calendar here to explore becoming an Acquisition Ace: Calendar

Ben, I Want to learn more…

If you feel that you are constantly working "in" the business instead of "on" the business and feel that your goal of financial freedom has led you to a prison of your own design.

You are not alone, I used to be there as well.

I have 5 companies and counting and work less than 20 hours a week on them - COMBINED.

It is not rocket science and I can help you do the same for your business.

Choose a time on my Calendar and we will get to it.

Onward,

Ben

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