The business acquisition is a complex undertaking and one of the most important steps in your life as an entrepreneur. Taking the time to prepare properly will save you serious headaches down the road.
Acquiring an up-and-running business can help your company to grow and diversify by giving you an established client base, eliminating a competitor or providing access to new products, equipment, and markets. But buying a company without a plan is like going on a road trip without a map.
- Does it make sense?
Don’t buy a business just because you can. You need a clear vision of where you want your company to be in future years and how an acquisition will help you get there. Will an acquisition increase your market share? Differentiate you from the competition? Diversify your revenue streams?
Tip: Avoid impulse buying. Your accountant, business adviser, and banker can all help you decide whether an acquisition is the best route for your business, given your overall strategic plan.
- Is your business ready?
Entrepreneurs often think exclusively regarding what they can afford. You also need to ask yourself whether you can integrate the new company into your existing business.
Acquisitions can be disruptive. They bring an influx of new clients, employees, infrastructure and organizational changes. Entrepreneurs should do a SWOT analysis (S—Strengths, W—Weaknesses, O—Opportunities, T—Threats) on their company’s current situation and then consider how that will change after an acquisition
Tip: Technology can help you work smarter. Formal, system-based workflows will make your life easier when the time comes to integrate a new business.
- What will the impact be on your business?
Acquiring a company creates financial obligations and operational changes that can drain your cash-flow in the short run. If those changes aren’t properly handled, they can cause your company to spin out of control.
That’s why it’s important—once you have a shortlist of potential acquisition targets—to simulate how different scenarios will impact your company.
Tip: Proper planning helps you evaluate the impact of an acquisition on your working capital and allow you to properly structure your balance sheet.
- Do you know what you’re buying?
Shopping for a company is like shopping for anything else: Buyer beware. You want the best value, the best fit and the best price. Ask yourself why a company is for sale and what lasting value it offers, starting with the profits it’s generating. Financial records may not always reflect reality. Many entrepreneurs later realize that they overpaid for the company they bought.
Tip: Do your homework on the business you’re buying. Find out as much as you can about the company and its employees as well a