Welcome to The Business Academy.

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I've seen business buyers make a lot of mistakes. I'm sharing the most common ones below to help you avoid pitfalls:

Not enough transition time

This is one of the more common mistakes I've seen. You may be a smart college grad, but if you're buying a plumbing business from a plumber, they've spent 20 years becoming the best at their craft. For a complicated business, the minimum transition time for me is 12 months. We set those expectations up front.

No alignment of incentives

When you're buying the business, everyone seems excited to work together. But if you pay out the owner in full, and ask them nicely to stay around for another year...you're risking they leave and go on vacation permanently. A meaningful part of the earn-out or seller note should be tied to them sticking around (if you need them to stick around).

Think a good price solves all problems - Getting a business on the cheap is great. But it's not great if you're going to spend the next two years fighting to turn it around. It's better to find a better business, with a good team, at a reasonable price. Skip the bad business at a cheap price.

They ignore limiting factors on growth - A business may be too hard to grow because of some limiting factor. Figure out what that is during your pre-purchase diligence. There is usually a reason the previous owner didn't grow the business much larger than it is. It's better you identify what that is before you buy it.

Trust a placed CEO too soon - I've seen beautiful businesses destroyed by hired CEOs. If you bought a business, don't just place a seemingly capable CEO and step out. Be prepared to be very hadns on for years. And when you do hire someone, check-in with the staff and the employees, see how they feel about the business.

Don't talk with customers before acquisition - you have no way to know the reputation of your business if you don't speak to the customers. You can call them yourself and pretend to be a consulting firm doing customer research OR you can hire a firm to do this. But I prefer to do it myself.

Overpay - The worst thing you can do on your first acquisition is to overpay for the business. You're starting two steps back in a business you don't understand. When you buy a business you should expect it will go down by at least 20% while you're learning the ropes.The best thing you can do is buy a good business for a low price. That gives you the margin of safety you need as an investor.

Two Mistakes I've seen owners make:

Trust their general lawyer for M&A - Don't hire your friend to be your attorney...it will cost you a lot of money (read more on this here)

Do no tax planning - I spoke with a wealth manager who helped his client save $15 Million in taxes with a bit of tax planning. That won't be the case for everyone (it was a big acquisition). But hiring a wealth manager and tax adviser should save you a lot more money than it costs to hire them. Please hire them 3 years before you plan to sell. Don't hire them last minute (it gives you less options)

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by the way...If you're interested in seeing and investing in our deals sign-up here (accredited investors only). We will share interesting deals as they come up with you if you sign-up on the list.

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🔑 One fun watch

​The man who bought the moon...​

in 1980 Dennis Hope bought the moon! How can you buy the moon? Read below and watch the video here...it's pretty cool

1967 United Nations treaty said no country can own the moon. But it didn't say anything about individuals. So Dennis Hope claimed it for himself. He sells moon land for $19.99, and he's sold over 5 million of them to-date!

(please don't try this, I think it's a whimsical experiment, and dubiously legal)

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🔑 My Podcast interview with Andrew Gazdecki (owner of Acquire.com)

Hear about how he's building his business acauisition marketplace, and how he made a bunch of money selling his first company. You can listen on Apple​ Podcasts, Spotify and my new YouTube channel.

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Have a great week,

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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