Owners and senior executives are regularly presented with a variety of opportunities and options.  Most often, these are met with evaluation in real time as they attempt to assess and react to choices.  While some may lead to positive results, there is a straightforward method that can improve the likelihood of favorable outcomes.

Many of my clients are actively pursuing acquisitions as a means of adding equipment, technology, complimentary services, talented employees and, of course, customers.  Some are contacted by would-be sellers and must determine whether and to what extent this company would be a good fit.  A time-honored rule of thumb applies here: before going shopping, create a list and, to avoid going over budget, stick to it.

We recently went through this exercise with a growing business in the mid-west.  There are three steps in the model we use. 

First, create a list of the items you will be looking for to evaluate a potential acquisition partner.  These may include items such as sales volume for the trailing 12-36 months, EDITDA, value-added, cash flow, location, price, terms, on-site management/leadership, equipment, technology, reputation, customer list (including desired verticals/industries) to name a few.

Next step is to prioritize this list in order of importance.  Rather than simply assigning a letter grade or range, we move to step three.

Start with a base of 100 points in total.  Then “spend” the total of 100 points (and no more) on each of the items on your list.  The reason for this is simple.  You will organize your list in order of importance and because you have only 100 points to allocate, each item will also be listed in order of relative importance (ie: which is a “10” and which is a “1” or a “2”).   

This three-step process may be applied to other endeavors where there are a variety of factors that determine the relevant worth of the opportunity.

For more ways to better prepare your team to effectively evaluate opportunities, contact me at joe@ajstrategy.com.