The decision to buy or not to buy a company depends on its inherent value. Value is determined during preliminary business due diligence undertaken before the decision to buy is taken.
Preliminary due diligence entails looking at the inherent business of the company. You look for answers to questions like:
- Is the business inherently profitable?
- Are competitors running a similar business profitably?
- What is the longevity of the business?
- What is the brand reputation of the company in the market?
- What is the level of debt and other liabilities of the company?
- Does the company possess land or other assets which can be stripped and sold?
I like to do business due diligence quietly and often incognito. Only when the preliminary determination is made that the business can be viable or has bits and pieces that can be stripped and sold is contact made to the company.
If you reach an agreement on terms, you conclude a term sheet. The formal due diligence process with accountants and other people follows.
A decision to buy or not to buy is made coldly. If you believe that a business can be turned around and converted into a profitable venture, it is a yes.
Further, if you believe you can strip the assets and make a bit of profit, the answer is again a yes.
Otherwise, you move on and look for the right asset. An entrepreneur who observes self-discipline and makes the right call based on facts succeeds in making a profit. Those who believe too much in gut feel do not last long in this business.