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7/18/20241 min read

Acquisitions Gone Wrong

In a recent discussion with three business owners, I learned about their challenging experiences with asset purchase acquisitions over the past few years. They shared their setbacks, significantly impacting their businesses and disrupting their expansion plans.

These owners, primarily focused on operations and product development, lacked cost accounting expertise and had limited manufacturing accounting knowledge. This experience underscored the importance of recognizing one's core competencies and the potential need for additional expertise in other areas. It's a lesson that can enlighten any business owner considering an asset purchase acquisition.

Their lack of expertise in cost accounting became evident when they discovered that the acquired companies' cost accounting had not been updated for years. This led to production costs that were 20% to 25% higher than anticipated, as well as non-viable products and useless inventory write-offs. Consequently, they experienced unexpected losses and had to increase prices, which unfortunately alienated some customers.

Although they eventually overcame these challenges, the journey was undeniably difficult. The setbacks strained their relationships with investors and caused internal chaos until they fully resolved the issues.

So, what could have been done differently? The business owners could have benefited from an inexpensive professional internal review and testing of the cost accounting system. This proactive step, involving examining the cost of goods sold, bill of materials, inventory turns, and aging, could have revealed the issues before the acquisition, averting the subsequent years of challenges to recover from the acquisition gone wrong.

If you're considering purchasing a business, it's recommended that you contact Professional Business Intelligence for cost-effective reviews that offer assurance that your acquisition won't set you back for years.