What risks should you watch out for when you buy a business?
I spoke to
@jordanfliegel of
@Acquisition_Lab about what to look out for.
His answer especially mattered, as he has personally gone through the process and now helps advise the 120K+ members of the Lab on their own acquisitions.
And those members have done over 480+ acquisitions, surpassing $1 billion in acquisitions.
TL;DR: Jordan had three big elements he mentioned
1. Margin of Safety
Most people go into buying a business as optimists. They look for low-hanging fruit to increase cash flow immediately.
But things don't always work that way. J-curves are real and revenue often dips before recovering post-acquisition.
So Jordan recommends having enough capital to compensate for a potential 20%~30% dip.
Often called a debt service coverage ratio (DSCR) or in other words, how much cash you have available to pay your debt.
2. Flight risk
Alongside the owner, most businesses have a few key employees much of the company's success depends.
It is imperative you identify who those are early in the process and invest in building relationships with them.
Jordan recommends sometimes giving them a slight bonus as well post-acquisition and spending time listening and learning from them to ensure they feel safe and valued under new ownership.
3. Enthusiasm risk
Though much less tangible, Jordan recommends being honest about whether you will wake up every day excited about the business you're acquiring.
Will it require you to live in a city you do not want to be in? Will it allow you to do the things that fulfill you?
Listen to Jordan's full answer below 👇