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As a business broker in Singapore, I interact with buyers daily at different phases of the acquisition process. It’s an interesting experience as it allows me to reflect on the unique interaction with each buyer.
If this is your first time as an acquisition entrepreneur looking to buy a business in Singapore, this article will give you some perspective to consider. Rarely do people embark on this entrepreneurship through acquisition (ETA) route, hence there are not many references point to take note of in Singapore.
1. Circle of Competence
When you are searching a business to buy in Singapore for the first time, it’s important to ask yourself if it lies within your circle of competence. So, what is “Circle of Competence” all about? It is the knowledge, experience and skillset to drive the growth of the intended business.
Without the right knowledge and skillset, you incur what I deem as operational risk. It’s common for newly minted business owner to realize that they do not have the right capability to grow their acquired business. This typically take place 6 months – 24 months down the road, when they realize that things are not working out.
A good example is John whose professional experience is in B2B trade, and he starts operating a newly acquired B2C business. 18 months later, he finally realised that he doesn't have the right skills to operate the business and the revenue has been slipping.
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2. Budget For Post Acquisition Phase
An advantage of buying a profitable business is that it generally comes with positive cashflow. As a result of this, some buyers do not set aside any budget for post-acquisition activities. E.g. business expansion plan, technological implementation, etc.
This is a mistake as there are always unexpected cost that you can only realize upon taking over the business. A rule of thumb is to set aside 20%~30% of the acquisition budget for post-acquisition fund.
Read Next Article: Pros and Cons of Buying a Business in Singapore: A Guide for Aspiring Entrepreneurs
3. Are you a Zero Fighter?
Every month, I receive enquiries from buyers who are actively sourcing for deals and looking to pay zero or less than 10% of the total selling price for the first tranche. (upfront payment for taking over business)
While there is nothing wrong with it in theory, I consider this group to be tier-4 buyers for most SME deals. I typically encourage them to source for their own deals or work with other M&A advisors.
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As a Singapore business broker, I advise business owners to only consider an offer if the buyers can put up at least 30% upfront payment for the first tranche. Such buyers are likely to be serious and better to work with because they have skin in the game. (Let’s not waste time, buddy!)
4. Passive Income Trap
There are many Singapore investors who dreamed of having “passive income”. Frankly there is no such thing as passive income unless you are a 2nd or 3rd generation wealth. Even if you are a landlord renting out your properties, you still need to handle the tenants or maintenance issues yourself. If you are paying someone to do it for you, then it will be a different story.
When you do a business take over, you need to be in the game unless your newly acquired business can hire someone at a GM level and have skin in the game. Otherwise, the business will just deteriorate overtime.
Inadequate due diligence
During the due diligence, it’s important to check out all aspects of the business before signing the sales purchase agreement (SPA). It can be a painful mistake to take the easy way out. Some of the things to look out for includes:
1. Physical product testing, reviews and complaints
2. Location, footfall, tenancy agreement, local development
3. Book-keeping and verify the reasons for financial discrepancy if any (Every buyer has different tolerance level for this matter. No right or wrong, in my opinion)
4. Sectorial focus KPI metrics
5. Bank statement (Cash movement)
6. Sales trend, distribution channels, customer concentration and retention rate
7. Number of suppliers, inventory turnover and stock-taking
8. Organizational chart
Read Next Article: 5 Tips Before You Buy a Business in Singapore!
6. Work life Balance Escape
There are many employees who came into entrepreneurship with the sole intention of avoiding long working hours, internal politics or the grind of their previous/ current employment. But once they have their own business, then they realize that they are putting in longer hours than they expect. (Probably with less pay and more stress as well!)
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7. Ignoring The Human Element
When you buy a business in Singapore, it’s more than just acquiring the P&L. You are in fact, acquiring all aspect of it, including the people. Consider the employees, management team, and company culture. How will the acquisition impact them? Fear can be a contagion and have detrimental effect on your business in an unexpected way.
Retaining key personnel is often crucial for a successful transition. Develop a plan for integrating the acquired business into your existing operations or creating a smooth transition for existing staff. Having high employee turnover can be disruptive for business continuity. Perhaps offering a retention bonus might be a viable option?
8. Missing In Action (MIA)
There are buyers who go MIA during the acquisition process. This will leave a negative impression on the stakeholders involved, and they are unlikely to prioritize you in the future. For most Singapore business brokers or M&A advisors who deal with such buyers, they are likely to put this group of MIA buyers on ice after some time.
9. Overstretched Finance
There is nothing wrong with taking up loans to acquire a business. In fact, having the right loan facilities and seller financing can allow one to acquire a meaningful deal when the right one comes along the way. But if the loan repayment and quantum is likely to give you sleepless nights, you might want to rethink about it.
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An alternative way is to rope in investors to take up certain stake of the business. You don’t have to eat the pie alone. An example could be your family, friends, ex-colleagues etc. Sometimes a smaller deal that allows you to sleep better at night, is better than no deal or a deal that causes you indigestion!
Buying a Business in Singapore
On a nutshell, there are many aspects to consider when it comes to business to buy in Singapore. Being flexible, prudent and perhaps talking to Singapore business broker can go a long way.
Read Next Article: The Role and Contribution of a Singapore Business Broker
Whether you are looking to buy business in Singapore or sell business in Singapore, let us help you. Talk to a business broker in Singapore today.
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