How To Be Successful At Buying Companies
Buying Companies For Accelerated Growth
If you’re an entrepreneur and you’re looking to grow your business to seven, or eight, or even nine figures in the shortest time possible, then understanding how to successfully buy other companies is great way to scale almost any business fast, and also to massively increase your profit margin, if done, right.
Now, if this is the very first time you’re seeing one of my posts, my name is Chris Guerriero. And I’ve built nearly a dozen businesses, four of which are eight figure companies. I’ve also bought and sold companies in a variety of different industries.
The Truth About Buying Companies
I know that buying a business is initially kind of scary for some people. And it probably should be, because there’s a lot that could go wrong. Unless, of course, you know how to do it right. Which is part of what I want to go over here today. Because if you know how to do it, then the risk is far less. And the upside is just so much better.
In fact, these days, I wouldn’t buy or even invest in a company unless I thought that I had a very high chance of making it a big win for everybody involved. One of the main tools that I use to figure this out is a series of questions in twelve different categories, and I’m going to share those categories as well as the questions so that you have a really good understanding of how we go out in there and evaluate companies before potential purchase. Plus how you can too, if buying a business sounds good to you.
It probably should, because when we buy a company the right way, we immediately add customers into our funnel. We might even add some key team members that we couldn’t get otherwise. We might also get some proprietary software, or maybe a prospect list or something like that, or a whole host of other things that we could monetize within literally the first few months after the acquisition.
The Twelve Things To Evaluate Before Buying Companies:
So the very first thing that I look at, if I’m thinking about buying companies, is the industry. I want to do an industry analysis because, I want to be able to know exactly what the potential of that industry is.
I also want a competitor analysis, to know who they are, what they’re doing, what their weaknesses, and their strengths are, who their top employees are, where the majority of their sales come from all of that kind of stuff.
Then I also want to know, what products do people buy in this industry that we offer or can offer, what are the average prices, people pay in this industry, and what makes them the company that I might be acquiring unique in the industry.
The second thing that I look at is audience. I do a deep dive into learning about their top customers, their average customers, their prospects, and any other potential audiences who might be a customer of ours.
The third thing to consider when buying a business, I want to look at their revenue. Their gross their net, their cash flow, their margin, their projections, and all that other kind of stuff. And we have our own kind of spreadsheet to organize that.
Fourth, I look at their organization. How structured their team is, and we have every single company do a process org chart for that. I want to know how structured their workflow is and we have them build a workflow chart for that. Finally, how structured or how lean their finances are. The money flow, the employee pay rates, quarterly expense, monitoring, all that kind of stuff, and how structured are their projections. Personally, we use 30-60-90 day projections for revenue, as well as all associated tasks that we need in order to reach those revenue targets.
By the way, we have a video coming out on how to build out a process or chart and a workflow chart and all the other things that I just talked about. Because the process that we use in my companies is something that took us hundreds of thousands of dollars in man hours to build out. And it’s a massive value to the companies that I’ve used it in. So please take a second to subscribe to our YouTube now and turn on the notifications. That way you don’t miss it, it’s really worth it to see how we unpack that inside of our companies.
The fifth thing that we look at when buying companies is the teams. Who they are, why they work there, what their job description is how they fit into the org chart what their pay is and why.
I also want to know, who are their top team members who’s on their leadership team and why are they on the leadership team? What’s what kind of ongoing training they use for leadership? Who are their weakest links on their team? What’s the process for exiting team members or poor performing employees? Because that gives us a lot of insight also.
Sixth, we look at culture. Do they have a core set of values to base decisions on? Does everybody on their team know and live by those values? Do they have a clear company mission that they use as a guidepost for their decisions? What is their process for building culture and morale and loyalty and cohesiveness on their team? This is important when looking to buy a company but often overlooked.
Now that brings up something interesting, I have a question for you. What revenue level do you think that a company needs to be at before culture becomes vital to their growth? Tell me in the comments on this video. I’m really curious to see what everybody thinks. Is it from day one? Or is it from when you hit the million dollar mark, the $10 million mark $25 million mark 100 million dollar mark, whatever. Tell me what you think in the comments.
And if you have no idea, then go ahead and say that because it’s okay to have no clue about a lot of things in business. I’ve seen companies blow up without knowing anything about how to build culture. And of course, you know, most of the time, they all end up dying soon after, because culture is pretty damn vital.
The seventh thing that we look at is systems. Do they have systems? Does every system follow the same format? Does every team member use their systems? How often are their systems updated? Who’s in charge of their systems? How are their systems built? Do they have a copy of the systems that are used by their top competitors? I mean, that’s all very, very important.
8. Potential Market
The eighth thing that we look at is reach, how big is their potential market? How much of the market do they own? What platforms do they currently use to get exposure on their market? What other platforms might give them a much greater exposure to their market that we might be able to tap into?
And nine, the ninth thing is relationships. What are their top relationships, like companies, individuals, vendors, who they currently leverage to accelerate their growth?
Also, what relationships would accelerate their growth, if they had them? Because often I could go into a company and bring my relationships. Often that accelerates the growth of that company very, very, very, very fast.
10. Exit Strategy
The 10th thing that we look at is exit strategy. Are they built to sell? Are they planning to sell? Do they know the most common multiples for sale? Do they know who would acquire them? Meaning who’s currently acquiring companies like theirs in that industry?
Can those companies afford to pay what they would want to sell for? Or do they already have a relationship with at least one potential buyer? And have they asked that buyer exactly what they look for in an acquisition?
11. Lateral Expansion Potential
Eleven Is lateral expansion potential. Are they open to acquiring other companies? Can they able to afford an acquisition? Are they able to handle an acquisition if that was put in front of them?
12. Corporate Setup
The twelfth and last thing on the list before you buy a company is corporate setup. What kind of corporation are they? Do they own multiple companies for tax or legal purposes? Do they own IP? And if so, is that set up on its own company? IP being intellectual property.
Are You Ready To Buy A Business?
If you want to know how to be successful at buying companies, then there’s really only one way to do that. And it’s to sit down with potential acquisitions and start going through some due diligence. And the absolute best way to do due diligence starts with a clear set of questions like these.
MEET CHRIS GUERRIERO
Chris is an entrepreneur, investor, bestselling author, and advisor to a handful of high growth companies.
He has built four 8-figure companies, developed winning leadership teams in six industries, and designed business systems that predictably grow multi-million dollar brands.
He’s been featured in financial periodicals such as: Success, Inc, Bloomberg TV, and in Entrepreneur as a top entrepreneurs of the time.
In addition to his own companies, Chris is also an advisor, investor and equity holder in companies across a variety of industries, including health, medical, digital advertising, legal and real estate.