Questions about buying and keeping a business

An acquisition thesis is a one-page memo a buyer writes before looking at any company for sale. It covers five things: the kind of business, why it lasts, why this buyer fits it, why now, and what evidence would prove the memo wrong. Each company for sale is checked against the memo before any meeting with the seller. The guide how to write an acquisition thesis builds one for an invented cleaning company.

A buy box is a written list of what a buyer will buy and what the buyer will never buy, written before the first listing is opened. Real estate investors use the term for their rules on which properties to consider. For a company, the box covers seven dimensions: the kind of business, its size, distance from home, money floors, what must already exist, the handover and the seller's situation. The never list comes first, and the buy box worksheet prints it.

A deal breaker is a fact a buyer can learn early, in a first call or a first look at the numbers, that no price would fix for that buyer. Examples include one customer bringing in a large share of revenue, revenue falling in two of the last three years, a business that depends on the seller's personal license or relationships, unresolved lawsuits, a short lease on a site the business cannot leave, and a seller who refuses a meeting with the second-in-command before closing. The worksheet asks for at least three, with the numbers set before any company is seen.

The thesis guide starts from the limits the buyer brings: the hours available, the money that can go in, the skills already there, and how long the buyer means to own the company. Kinds of business that fit those limits, and whose customers will need them for decades, make the short list. Each reason goes on paper beside the evidence that would prove it wrong, before any seller tells a story about a particular company.

Knowing the industry helps most in the first visits: the buyer can judge the work, the customers and the staff without a guide. It also brings a blind spot, the belief that this business runs the way a former employer's did. A buyer from outside the trade can write a manager who stays into the buy box, and spend time with owners in that trade before making an offer.

A business is too big when it needs more than the buyer has on any of three measures: hours a week in the first year, counting a bad month; money, with a reserve held back; and the size of the largest operation the buyer has run. A shortfall on any one means the company is too big today, or it needs a manager who stays after the sale. The size line in the buy box guide tests this before any company is seen.

No rule sets a number. The limit comes from how much each business still needs from its owner: the hours each one takes in a bad month, added up and set against the hours the owner has. Forecasts built from an owner's own plan tend to run optimistic, as Daniel Kahneman and Dan Lovallo argued in 1993, so the total needs a margin; the thesis guide covers their inside and outside views. The rule this site uses: a second purchase waits until the first business has run for a month without its owner.

A dull business can be a good one when customers need it every year, no single customer carries it, and it runs without its owner. Dullness by itself says nothing about those conditions. The money floors and the "what must exist" line in the buy box guide test each of them before any meeting with a seller.

Selling comes into question when the reasons for buying no longer hold, when the owner can no longer give the business what it needs and hiring cannot close the gap, or when the money from a sale, after costs and tax, would clearly do more somewhere else. A written review once a year answers those questions and sets the answers beside the previous review. The guide when to sell a business you own and when to keep it ends with a one-page table for it.

In a 1990 experiment by Daniel Kahneman, Jack Knetsch and Richard Thaler, students given a coffee mug set median selling prices more than twice the median prices students without one would pay. Research on the sunk cost effect finds a greater tendency to keep going once money, effort or time has gone in, and a business someone built holds years of all three. The keep-or-sell guide cites both studies and sets out a yearly written review that puts the owner's reasons on one page.

Everything published on Visionbender is general education about thinking through a purchase or a sale. None of it is advice about a reader's money, taxes or a specific company, and reading it creates no adviser relationship. Decisions about a particular situation belong with a financial adviser, a tax professional and a lawyer who know the details.