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What are the keys to success in your opinion in buying a business?

If you’re buying a small business, which we will define here for the sake of argument as having one million in sales or less, make sure that you buy one whose core driver directly matches your key skill. To illustrate this point, let me offer a few negative examples. Suppose your key skill is marketing and you buy a small architectural firm. The firm’s core drive will be its architectural expertise. What is your level of risk as owner if the architectural staff leaves? The answer is that it’s as high as it can get because you can’t step in and take over their work until replacements are found. Their departure stops the revenue flow. What if you’re an accountant who buys a small machine shop repairing valves for a local refinery and your machinists leave? Again, unless you know how to operate the equipment, you’re dead in the water.

To answer your question, the business you buy should have as its core driver a function you excel at. This doesn’t mean that you have to perform the function any longer. It just means that you need to be able to step in and keep the business going if a key employee or group of employees leaves. Think of law firms where senior partners often become rain-makers and delegate all actual legal work to subordinates. In the event that subordinates were not available, due to the Swine Flu for example, the rain maker could roll up his sleeves and work the files until they returned or were replaced in order to keep the firm going.

This type of risk becomes less of an issue as the business grows and acquires more employees. However, with a small business just the loss of one key employee can kill it–unless you can step in and take over.

Any employee who provides a critical skill that the owner can’t has power over that owner.

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