M&A Corner: Considerations for Inexperienced Buyers
The team here at Seamless are extremely experienced in merger and acquisition work and we’d love to work with you on your transaction, but for many small and medium sized business owners it’s difficult to know where to even begin when approach with the opportunity to consummate a transaction.
This list could be long and detailed enough to put you to sleep, but some basic questions to begin with are:
Revenue Growth - Is it erratic or show long-term growth?
Customer concentration - are revenues concentrated in a few large customers, or spread out across a greater variety of customers?
Gross Margin - Is it consistent and are there accurate accounting of the cost-inputs?
Overhead Expenses - Review overhead accounts and see their trends overtime. Is the overhead structure bloated, signaling potential opportunity? Or have overhead expenses been declining, suggesting a business that is run at the edge of its operating envelope and may have burnt-out employees or stressed infrastructure?
Days Sales Outstanding - How quickly does the business collect cash on its different revenue types?
Inventory Turnover - How quickly (or slowly) does inventory move?
CapEx Growth - Are fixed assets over time growing? Declining?
Bank Reconciliation - Is the seller regularly tying out the activity from the bank to what’s reported in the books?
Distributions - How much is the owner withdrawing from the company?
And if you’re not looking to purchase a business because you already have one? These are metrics you still will want to track because they will reveal the financial health of your business.
