Subscribe to Inc. magazine
BUYING A SMALL BUSINESS

How To Buy A Business

Advertisement

Ken Hendricks buys companies more often than most people buy toothpaste. He claims his ability to size up the numbers is innate: "I'll walk in and look at a financial statement and I'll spot fraud like that. It's a sixth sense." More ordinary, five-sensed entrepreneurs may need a little help dissecting the financials. But they can still learn from Hendricks's five rules for a successful acquisition.

Make the call
After getting a lead, the owner of the acquiring company must phone the target himself. Delegating that initial contact suggests a lack of serious interest, Hendricks says.

Find the why
Hendricks estimates that about 25 percent of acquisition prospects aren't straight with him about their reasons for selling. A company may have lost its major customer or top salesperson. Perhaps a new technology threatens its relevance. Or it has just lost its lease, and success depends on location, location, location. "There are legitimate reasons: someone died or is at an age to retire," says Hendricks. "But you'd better do your research so you know when you're walking into a dead horse."

Gather the team
For each acquisition, Hendricks forms a four- or five-person fact-finding team that includes experts in accounting, human resources, and technology, and at least one member who is well versed in the target company's industry. All members must have strong people skills "because they'll be the ones working with the company after the acquisition," says Hendricks.

Look in back
Don't assume you'll get the straight dope (including why the company is for sale) from management, says Hendricks. As soon as possible, he disengages from the brass and seeks enlightenment from labor. "Walk in the back room and talk to the warehouse guy or the forklift operator and say, 'If you were running this business, what would you do differently?" says Hendricks. "I guarantee if you fixed what they tell you, 95 percent of the time that would be a successful business. These guys hit it on the head all the time. But management never asks them."

Draw the dream
Immediately after an acquisition, Hendricks gathers all employees of his new business together and explains what is possible. He talks about growth opportunities and management positions. He urges workers to enlarge their ambitions to scale with their new employer. "The larger horizon just got bigger," says Hendricks. "So their individual horizons should get bigger, too."




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: