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5 Things to Look Out for Buying a Startup

Posted by Arya Chatterjee

December 22, 2023

Keep a tally of these green signals when buying or investing in a young company. 

In the unpredictable universe of startups, with its multiple risks, buying a business can feel like skydiving with no parachute. Every seasoned business owner and investor understands that their choices today echo through the corridors of profitability or peril tomorrow. 

While the red flags are what most talk about, the unmistakable glow of a green signal can serve as a beacon of assurance and safety. Anybody in the business world knows that investing isn’t just about financial metrics; it’s about aligning with a business that matches your company culture, is complimentary to your venture, and is possibly debt-free. 

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These five strategic green signals are worth looking for when aiming to succeed in this startup hunt. 

1. Financial stability 


It’s no secret that startups with a healthy balance sheet are more likely to thrive. So, before jumping into the acquisition pool, look closely at your target company’s financial statements and projected spending. 

The green lights to look for include steady revenue growth, manageable debt, and a robust cash flow; these ensure that the startup is firmly rooted and rising. These also help determine the financial forecast and future business budgeting — whether the company has a clear path to profitability. 

2. Talent tribe 


Every business’s backbone is its employees. A 2015 McKinsey report found that companies that encourage diversity in management are 35% more likely to have financial results above their industry mean. While dancing the acquisition waltz, it’s essential to look around the room and see who your startup’s tribe is. Harvard Business Review makes a strong case for having an enriched employee pool to boost the company’s joint intellectual property. 

Have genuine conversations with the existing team to uncover their passions, motivations, and ambitions. A team with a shared vision will help you build that rocketship to success. 

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3. Cutting-edge tech


In the world of entrepreneurship, tech is the king. A recent report by McKinsey confirms that startups leveraging advanced technologies, especially AI, are twice as likely to create new sources of revenue and increase the value of existing offerings through tech-based features. Before financing a business purchase, look for the presence of cutting-edge tech. 

Dive into the startup’s tech stack to see how they embrace innovation. Are they encouraging tech advancements, or are they clinging to outdated tools? 

4. Customer-centric 


The success of a business is measured by its satisfied customers. According to a survey by Dimensional Research, 90% of customers claim online reviews influence their buying decisions. As you evaluate business and financial operations, pay attention to customer reviews. A startup with a loyal customer following is a substantial green flag. 

Social media serves as a magnifying glass to investigate customer engagement. Pop into the comments section to peek into the business’s customer relationship. 

5. Regulatory realm


Navigating the regulatory realm can be a daunting task for any small business. However, it is critical to find a startup that constantly updates its model based on regulatory changes.

Invest in startups that have cracked the code and established a process to help them sail through the ever-changing landscape of compliances. Engage with the current legal squad to understand how vital your armor will be against unforeseen regulatory challenges. 

While these are only a few green signals that endorse any startup’s potential for growth, remember that acquiring a business is not a mere transaction but a journey into the unknown. Whether you’re part of a firm or believe in independent business funding, these green signals can be your compass and map to knowing where to put your money. 

Furthermore, your chosen startup should tick these boxes and align with your long-term goals, values, and vision. So, venture forth and carve a tale of triumph through a thriving jungle of entrepreneurial opportunities. These green flags aren’t just signals of success but beacons that lead you to undiscovered riches.  

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Want to know more about startups and what it takes to get started? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.

Author

Arya Chatterjee
Arya Chatterjee

Arya Chatterjee is a freelance writer and consultant from Mumbai. With a background in journalism and over five years of creative writing experience working with legacy media like Architectural Digest and Femina India and brands like The Label Life, ThinkRight.me and Macy's, she crafts unique and compelling stories that engage the readers. She enjoys writing about health, beauty, fashion, and lifestyle and exploring the symbiotic relationship between thriving businesses and happy employees through her writing. She is always looking to explore new avenues to expand her creative energy.

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