Take Five #013: The 7 Biggest Mistakes When Buying a Business & more
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Codely v2.0 public release is here
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What has changed in our latest release?
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All new features available for all public channel users
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Coding collaboration with over 200 users at once
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Real-time code save every 0.1 seconds
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Take Five #013: The 7 Biggest Mistakes When Buying a Business & more
1. On the necessary risk tolerance needed for Entrepreneurship through Acquisition
One entrepreneur’s personal assessment on how their search fund intersects with their risk tolerance:
“Since I do not see myself returning to a non-entrepreneurial career path given my interests, goals, and personality, pursuing a traditional search fund is one of the most risk-averse opportunities. A lot about risk is assessing and managing the downside outcomes, and we’d need another article to dive into risk management correctly. Yes, objectively speaking, being an entrepreneur naturally means more uncertainty and potentially much more downside financially and emotionally. However, when you compare buying an existing business with its alternatives (i.e., starting a new venture from an idea), search funds give us entrepreneurs a bit more downside protection from the unknown.”
From “Assessing your risk tolerance” by David LaMore
2. What are your "Big 3 & Little 2 Criteria"?
3. EBITDA in this economy: “How much does EBTIDA need to increase to make up for a decline in multiples?”
How sellers might maximize their business valuations:
“So what does this all mean, and why should any business owner care? My team often hears business owners say, “My business is doing great, and I don’t think it’s time to sell, even though I’m looking at retirement or an exit within the next few years." But here’s the issue with that line of thinking: If you wait long enough in a peak mergers-and-acquisitions market, you’ll likely see valuation multiples drop, especially in a situation where interest rates are rising.
With a drop in valuation multiple, your business will have to increase its EBITDA by a meaningful amount so that you are able to achieve the same valuation you would have received at the peak. As such, unless you’re 100% certain that your business will grow for the foreseeable future, there’s a significant valuation risk associated with delaying a sale of the business or at least some partial liquidity event.”
From “A Guide To EBITDA Multiples And Their Impact On Private Company Valuations” from Forbes
4. The 7 Biggest Mistakes When Buying a Business
Great shortlist of commonly overlooked items from buyers:
Mistake #3 - Assuming that things will stay the same.
One of the biggest mistakes business buyers make is to look at a business as it is and assume that it will be the same business they saw before they purchased it. The day the business is sold, the business valuation changes. A new owner will always do things differently, and have a different relationship with employees and customers and vendors. The new business might be better - or worse - but it's impossible to tell what might happen. Don't buy a business thinking you know what you are buying.
From “7 Biggest Mistakes When Buying a Business” on Searchfunder
5. How this ecommerce flip 8x’d their monthly revenue:
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