The top six things I look for when evaluating a business as a potential acquisition target

I look for the following six things when considering buying a business. In reality, very few sub £5m (and a fair few £5m plus) turnover businesses are strong in all six areas but that’s ok as I can probably fix them, but it just means a bit more risk and a bit more work.

Limited, or zero, reliance upon the owner

If the business owner is in the business day to day and critical to the business’ operations, then you must question how the business will perform or even survive without them.

Low concentration risk

If most sales come from a single customer, the business is reliant upon a single supplier, or a single person drives most of the value, the business has a high concentration risk. I then fear what would happen if the customer went bust or the hot shot salesperson leaves.

Quality second tier management

This reduces the risk to the business once the owner leaves and reduces the business’ reliance upon one member of the management team.

Documented systems and processes

Even better if these are automated. I have heard horror stories of multi-million turnover businesses being run on bits of paper that get passed around the office and only the owner knows what on earth is going on.

Quality financial reporting

This means cash flow forecasts, management accounts, KPI dashboards, etc. I have had so many meetings with people looking to sell their business and the last bit of financial information is the annual accounts from the year ended 12 months ago. I am interested in what is how the business is doing now!

Regular, repeatable profits

Covid years can confuse things at the moment but when buying a business, buyers are actually buying future cash flows and the more predictable they are, the less risky the acquisition is, and the more likely a business is to sell.

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