Herman: John L. Herman Jr., Author

Avoid a costly acquisition

Once I looked at an office supply company to buy. It was a one store operation with a long history of great customer service. Of paramount importance to their bottom line was the repair business for office equipment performed by the owner and one of his employees. Now I happen to love office stuff. The desks, chairs, accessories, even the smell of paper and envelopes and all things “business” related. But I couldn’t repair a flat tire, let alone a typewriter.

Oh yeah, they were the largest seller of typewriters in town. You remember the kind with the “white out” feature when you back-spaced on the keyboard and eliminated your keystroke error. Now, the owner just wanted out. Pay him his inventory value and a few extra bucks for his “good will” and the business would be all mine. Knowing I couldn’t repair anything saved my financial soul, and avoided a costly purchase of even the “best office supply store” in the area. You see, the owner knew he was beat. And that his repair business was falling off as people were replacing typewriters with something called Personal Computers. He knew his customers and they were dwindling. There was even talk among the other office supply owners around the country that some kind of “super stores” were coming.

Now, I could have been looking at a hardware store, a mom and pop sporting goods store, or even the best shoe store or clothing outlet in our town. They were all doomed. Within a few months of my declining to buy the office supply store the owner had his “going out of business sale.” Not only were those computer things here to stay, the new “Office Depot” crushed his other supply sales. Big box stores became the rage in every field. Small time, one location shops couldn’t compete anymore.

Who knew vinyl records would disappear so fast and become cassettes? I handled the bankruptcy sale of the world’s largest cassette manufacturer (175 million cassettes per year), and I also sold (but never owned) the first ever CD plant which went bust up in Maine, at that time the largest bankruptcy case in that State.

Technology, tastes, and the way we buy things all change and sometimes rather quickly. Before you make that seemingly low cost acquisition always ask yourself what does the owner know that I don’t? What is the trend in that industry? Now, I once bought a gas station lease for thirty grand and sold it less than a year later for one hundred thousand, so surely there are many bargains to be had. Keep in mind, that if you want to own a business, then go for it. But put more sweat equity in than money if you can, because you can recover from lost time easier than you can recover from lost money.

• Posted: 3 November 2007
• Comments: 1
• Category: Starting a business

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