A Buyer’s Biggest Mistake? – Buying the Wrong Business

In the past I've stated that the biggest mistake business buyers make is failing to perform appropriate and effective due diligence on their chosen acquisition opportunity. Most business buyers feel they can perform the acquisition due diligence themselves, but I've seen plenty of examples in which buyers missed something very important in the process. Insufficient due diligence can bring trouble. And it's in these cases that I've most often seen a business buyer really struggle post closing.

The argument is often that they're saving money upfront - that's true. But if they are not experienced in all aspects of due diligence, the lack of breadth and depth of knowledge will eventually cost them. That's why I'll always stand by my advice about due diligence. Whether you handle it personally or delegate to an expert, be sure to perform appropriate and effective due diligence regarding all important aspects of the chosen acquisition target.

That said, after some time and thought it now occurs to me that instead of insufficient due diligence, the biggest mistake a buyer can make when buying a business is to buy the wrong business. That's because buying a business is itself a major project. The process consumes a lot of time, treasure, and headspace. And once momentum builds, second guessing might not feel possible. But here's the risk: dedicating full resources to a business acquisition can lead to a buyer seizing one opportunity while altogether missing out on another opportunity that might be a better fit or offer a better outcome.

Here's why this matters. Operating a business and either turning it around or driving it towards its full potential is a lot of work. Transformation is tough. And a project that involves so many moving parts could reasonably be expected to take several years. Buying a business that is not a great fit for the buyer's current skill set or that wasn't managed well to begin with is going to present another more complex and frustrating layer to work through. Transforming a business is always hard. But trying to make change happen in a business that doesn't match well with the buyer can be a far greater struggle than it needs to be.

That's why -  if at all possible - it's best to find an acquisition opportunity that fits the buyer's skill set, philosophy, and management style. Transformation is going to be on a more reasonable timeline and frustration will be minimized.

But finding an ideal opportunity is like finding a needle in a haystack. It can be a challenge to find any acquisition opportunity and close successfully, let alone finding that just-right deal. That's all the more reason, in my mind, to either engage a business finder or to build and operate a deal magnet as soon as you're considering purchasing a business. Do it without delay and leave no stones unturned.

Of course everything comes down to opportunity cost and how you want to spend your limited resources. At the end of the day you, the buyer, are putting in the time and money to buy, operate, and transform a business. You have to decide whether or not you want the business to be a good fit from the outset or if you want to invest in turning it around. 

Realistic Partners with Real-World Experience

Not everyone likes to admit that their opinions shift over time. Then again, they might not even get that far - it takes a thoughtful approach to see the need for change. There are plenty of legal teams out there who are happy to help you acquire a company. And here at Calkins Law Firm we exist to serve clients. But we also care enough about our clients and their future to be willing to have and express unpopular opinions. This practice stems from our consistently careful and thoughtful approach.

Every business acquisition story will be different, but the process will always be easier and more successful when working with an expert. If you are in the market to acquire a business, rely on Calkins Law Firm for solid guidance and sound legal advice. Reach out today and learn how we can put our knowledge and experience to work for you.

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Benjamin Calkins

Benjamin Calkins

Ben Calkins is a well-educated, top-rated, and highly experienced business law attorney.

Ben Calkins is an honors graduate of Harvard College and the University of Michigan Law School. After law school, he clerked for a Federal Judge before joining one of the World’s largest law firms, Squire, Sanders & Dempsey. Mr. Calkins has also worked at, and been a partner in, several of the most prominent “old style law firms” in the World.