Buying a Small Business

The characteristics that Bill possesses that would be beneficial if he decided to take over Hugo’s small business would first be the skill level that his has in his trade. He is very well versed in what the company does and has already established a reputation for himself. Since this is what Bill has been doing all of his life, he is probably one of the best qualified to take over the business when it comes to the quality of the product. Bills positive attitude and drive for perfection would also be good characteristics for someone wanted to enter into the small business world. He seems to value achieving the highest quality over earnings. It is obvious that, since Bill is emailing me for advice on whether or not he should buy the company from Hugo, that he also possesses the beneficial entrepreneurial characteristic of being future oriented.

Bill’s email to me also tells me that he isn’t sure on whether or not buying the company is the best decision for him at this point in his life with the knowledge that he currently possesses. If Bill doesn’t have confidence in his ability to achieve success in this venture, it could be a factor that leads to the ultimate failure of the business (Boniface-Hannon, 2011). Bill also does not have a preference for moderate risk because he is raising three children and spends the majority of the household income on bills related to taking care of them. He would be fiscally unable to take the risk of not bringing home that money each pay day. Those two characteristics alone should be enough to make Bill think twice before agreeing to buy the business from Hugo. If the company went under, he would still owe Hugo money for the next 15 years not to mention the fact that he would no longer have a job. One of the biggest mistakes that a new business owner can make is undercapitalization. Coupled with his inexperience in the business aspect of the company and his lack of business knowledge, Bill would be taking a very substantial risk by agreeing to buy the business from Hugo at this point.

To avoid seeing the business turn to shambles, Bill needs to identify his weaknesses and act accordingly by aggressively compensating for his lack of experience in those areas. Bill would need to hire someone well versed in the financial aspect of the company to help manage resources and understand what different parts of the statement mean to the company’s bottom line. He would also need to establish a team of managers that could also help to advise him on the options he has when trying to deal with management related issues. Bill has a problem with undercapitalization therefore; he needs to make sure that every penny that he spends goes to what would be the most beneficial for the company. Bill should also attempt to negotiate the terms of the sale to include Hugo slowly leaving the business. During his phasing out into retirement, he could show Bill everything there is to know in reference to the business aspect of the company as well as management styles that have worked best for him in the past. Learning the business model from the person who created it, slowly overtime so that Bill has extensive in depth knowledge, would be far superior to any general business class. If Bill can be certain that Hugo is willing to assist in the transition and provide him with all of the necessary knowledge to successfully run a profitable business, the deal that Bill is being offered is an attractive one. In addition, Bill could request Hugo “to stay on in a consulting capacity for a period of time” (Scarborough, Wilson, & Zimmerer, 2009).

It is hard to say what I would do if I were in Hugo’s position. Offering to sell the business to Bill seems like a good idea because he knows that the business will be in good hands and will carry on the reputation that he has worked so hard to build. On the other hand, the attractive offer makes me wonder whether or not Hugo is having difficulty getting rid of the business. If something sounds too good to be true, there's usually a reason for it. Hugo may have already made an effort to sell the company and been unable to. If he had been unsuccessful in selling the business prior to the offer, was it because of the slow economy or are there underlying skeletons on the company’s balance sheet that Bill is unaware of because he has yet to do the proper research. It is imperative that before buying or selling the business, both parties thoroughly investigates the company based on multiple methods of valuation so that they can ensure that they know exactly what they are getting themselves into and assess the risk involved.  Hugo and Bill must realize that a business is only “ultimately worth what the highest bidder is willing to pay with terms and conditions that are most acceptable to the seller” (Scarborough, Wilson, & Zimmerer, 2009). Based on the information that I am aware of so far, I think that the offer Hugo is extending to Bill is an acceptable one. As Hugo, a man looking to go into retirement, a steady flow of income over the next 15 years would be equally as beneficial to me as a lump sum all at once.

Works Cited

Boniface-Hannon, C. (2011). WELCOME MGMT250 01 DCH. Retrieved on October 4, 2011 from https://mycampus.aiu-online.com/pages/MainFrame.aspx?ContentFrame=/Home/Pages/Default.aspx.

Scarborough, N., Wilson, D., & Zimmerer, T. (2009). Effective Small Business Management: An Entrepreneurial Approach. Prentice Hall.