What separates the 95% from the 5% in business acquisitions

Good morning!

Yesterday I shared the SBA’s data on business acquisition success rates:

Above 95% after five years, which is essentially the inverse of startup failure statistics.

But 95% isn’t 100%.

And the businesses that don’t work out after acquisition tend to share a handful of common characteristics.

These are worth understanding, because every one of them is avoidable if you know what to look for.

Sam bought a $1.41M outdoor lighting company in Cincinnati that’s completely run by the management team…

And he’s on track for 150%+ ROI in year one!

The sales manager has been there 15 years, and the service manager has been there 9 years.

There are 7,000+ existing clients, 50% of sales come from repeat customers, and the business runs itself.

Sam’s leaving his demanding Amazon ops job to focus on the business full-time and sees $800K+ in additional revenue opportunity from holiday lighting alone.

👉 Want a business with a proven team already in place? Book a call with our team here.

Skipping serious due diligence

Red flags that get ignored before closing have a way of becoming very expensive problems afterward.

Messy financials, customer concentration issues, equipment that's past its useful life, legal matters that weren’t disclosed.

These things don’t disappear at closing, and they become your problem.

Due diligence is how you verify that what the seller told you is actually true.

If something doesn’t add up during this phase, that’s either a reason to renegotiate or a reason to walk away.

Buying the wrong type of business

Not all profitable businesses make good acquisitions.

• Businesses without recurring revenue require constant new customer acquisition just to maintain their current income.

• Businesses in industries vulnerable to economic downturns carry risks that only become obvious when conditions shift.

• Businesses without any real barrier to entry face competitive pressure that can erode margins quickly.

The fundamentals of what makes a good acquisition - recession resistance, recurring revenue, a genuine competitive moat - separate businesses that hold their value through changing conditions from ones that don’t…

And taking shortcuts here tends to show up later, when it’s much harder to fix.

(Inside Acquisition Ace, members learn how to screen every deal against these fundamentals before spending time on due diligence. If that would be helpful for you on your business acquisition journey, book a call with our team here to see how our community can help you achieve your goals.)

Buying a job instead of a business

This is one of the most common and most expensive mistakes first-time buyers make.

If the business depends on the new owner being physically present and personally involved in daily operations:

• Answering every question

• Making every decision

• Doing significant amounts of the work

…That’s a self-employment arrangement with debt attached.

The deals worth buying have capable management already in place, with someone who can run daily operations, handle the team, and keep the business functioning whether or not the owner is in the building.

Without that, you’ve just bought a different kind of constraint.

The remaining mistakes

There are a few more mistakes that show up after closing, making them a different kind of risk entirely…

And I’ll cover those next week!

For now, if you’d like help from people who’ve seen the horror stories and have learned how to navigate the process of buying a business successfully, the Acquisition Ace community is perfect for you.

👉 Book a call with my team here to see how it can help you, too.