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Under the microscope Featured

9:38am EDT July 22, 2002

Joseph Palmer says that buying a business is like judging a beauty contest.

"Unless you're a turnaround buyout company looking for a losing business, no one wants to buy a troubled company that requires a lot of heavy lifting to make it a profitable venture," he says.

As a partner at Moore Stephens Apple, an Akron accounting firm and business management consultancy, Palmer says that logically, a company doesn't have much to offer if it has marginal sales, hasn't maintained customer relationships and isn't running efficiently and effectively. But if a company passes the following checklist, it's a worthy candidate as a prospective purchase.

1. Succession plan. When you purchase a business, you're not just buying assets, products or services. You're buying people. Since sellers usually exit after a transition period, a company's ability to continue operating hinges on existing, succeeding management to serve as your mentors.

"If management hasn't been trained and allowed to implement key business decisions in the past, you will fail," says Palmer.

2. Strategic plan. This sets a business apart from its competition, says Palmer.

"Determine if the company has strategically positioned itself and communicated that mission to its employees, vendors and customers."

3. Financial reports. Scrutinize financial reporting practices, says Palmer, because companies able to expedite and acquire accurate financial data on a timely basis can benchmark performance, reinforce successful practices and promptly correct mistakes.

4. Value-added marketing. This is key, says Palmer, because you must be able to discern why, in the mind of the customer, the company's products and services are preferred over the competitor's.

"You need to know if the customer cares more about your price, service or value-added ways you're improving your product, so you can focus your efforts to meet their needs."

5. Customer satisfaction. Does the business seek customer feedback to measure satisfaction as to what the company is doing right or wrong?

"Customer input is extremely valuable in measuring the success of a business."

6. Budgeting. A company that has a budget and sticks to it is a safe bet, says Palmer.

"It's like the proverbial road map -- you need a plan to get there."

7. Productivity and profitability. Any business has two or three key indicators that, if monitored daily, weekly and monthly, can measure profitability

"You can measure productivity, which leads to profitability, by considering simple things such as how many pounds per employee was produced this week, how many products were shipped this month, what is the percentage of waste off this line. These are critical success factors to monitor."

8. Employee retention and growth. In today's market, the No. 1 concern of business owners is how to retain employees and grow the business. The answer to these questions should weigh heavily in your decision to buy a business.

9. Management team. "What you're looking for is growth, and you need an existing management infrastructure to support growth and change," says Palmer. "Have the owners made that commitment to breadth and depth of management?"

10. Use of technology. Look around the company, says Palmer. If you don't see an obvious use of current technology, it's not a good sign. How to reach:Moore Stephens Apple, (330) 867-7350