Strive Masiyiwa: Buying and selling businesses, is also business (Part 2)

                                       __Buying a business: six key questions.

Hello Everyone.

I hope you were able to study the part one of this article- ''Buying and selling businesses, is business.''

Now, we bring you the part two, as presented by Dr. Strive Masiyiwa.

Here, we go.

__Buying a business: six key questions.

A good entrepreneur must never be too sentimental towards a business. There’s a time to buy, a time to sell, and even a time to close a business. It's all business, and in a successful business career, you must have the capacity to do all three.

In the first part of this series, I introduced you to the subject of "buying or selling businesses." As an entrepreneur, you need to be aware that buying or selling a business is also part of business.
Let's look first at the subject of buying a business:

__You must always be very clear why you want to buy a business. Many people buy businesses, filled with emotions, yet with very little analytical work to justify their decision.
A friend of mine, with a great job, once came to me very excited that someone he knew was planning to sell his business, and he wanted to buy it. And as often happens in such situations, he wanted me to help him fund it.

Having listened to him quietly, I asked a simple question, "Why do you want to buy a business?"
"I have always wanted to get into business," he began.

"So, why have you taken this long?” I asked, adding, “After all these years, you could have already started something of your own; so why now?"

I wasn’t asking these questions just to be difficult. I wanted to see if he was an entrepreneur, or just someone hoping to make himself more wealthy.

After we had discussed for a while, I asked him: "Tell me what you’re going to do with this business, once you acquire it?"

Whether you’re buying a business for the first time, or you’re a giant multinational buying a business, these same questions always apply:

1. What is the motive behind your decision to buy a business?

2. What will you do with it, to grow and expand it, once you’ve acquired it?

3. Do you have the capacity to run and develop the business that you’re planning to buy?

4. What will you to pay for it, and how did you reach that price?

5. How are you going to pay for it?

6. What are the challenges and risks you will face that are outside your control?

When buying Neotel South Africa, we had to answer each of these questions, methodically and dispassionately, sometimes bringing in outside parties to test our answers to each question.
__These are principles you must write down carefully. Many books are also written on the subject. Believe me, I’ve read books and articles on acquisitions over the years, including those that failed spectacularly.

In a big company like Liquid, management must convince both the board and the investors. Then, of course, there are the banks and, in this case, there were lots and lots of banks.
Going back to the story of my friend:

I'm always skeptical about people who try to get into business by buying a business, unless they happen to be managers of the business they’re trying to buy. In most instances, when people opportunistically try to buy a business that’s on offer, it ends up badly. It either ends up struggling to keep its original glory, or they simply go out of business.

Most big businesses are not opportunistic buyers. They know exactly what they’re looking for, and they’ve usually been watching the business they propose to buy for quite a long time.

Every week we’re offered businesses to buy. I always, always, apply the six rules I’ve listed above. Once I can tick off the boxes on most (if not all) of those questions, in a methodical and dispassionate way, we can begin to look at it. Otherwise, I say thank you, and move on.

Here is the link to the part one of this article>  PART ONE


Afterthought 1. 

If you’re going to buy a business as a way to get into business, you must be able to demonstrate to a would-be investor or financier that you really have a vision for that business, and that you have the skills to execute on it. "It's a very profitable business," is not a good reason for me to support anyone to buy a business!


1. Tom Kyonda, Asks:

The above list of questions amounts to an examination to the prospective entrepreneur.However,nobody would mark for you.How do you handle a possibility where you feel you have the right answers for the set of questions yet in actual sense you are out of order(wrong)?

My reply:
This is a very profound observation.
To be honest with you, many entrepreneurs go bananas, when they get an opportunity to buy an existing business, that is big, and gives them what they see as "a once in a life time opportunity."
Even if you are convinced you have done your homework, it is important to take advice from people with a critical eye; those who will say things you don't necessarily want to hear.

2. Marcus Dreda, Asks:

"It's a very profitable business", is not a good reason than what must be a better one?''

My reply:
If you approach an investor or financier for funding to help you buy an existing business, it is not enough that you are buying a profitable business, the bigger question is:
#Will it remain profitable in your hands, after you buy it?

__even a very profitable business can be brought down, very quickly in the hands of people who do not know what they are doing!

Once an investor is comfortable that it is a good business, they quickly turn their attention to the capability of the entrepreneur. If you have no previous experience, they will struggle to give you their money.

Article originally written by Dr. Strive Masiyiwa



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