Did you know that around 20% of businesses tank each year? This presents you with numerous chances to absorb a company at a reduced rate. Or you could aim for a more successful business to take advantage of its market share.
Whatever you do, be very careful when entering into an agreement. Not every business deal is a winner.
Without careful planning, you’ll just be throwing money at a business that’s already struggling and not getting any returns. Profits and growth are achievable only when you have a good acquisition strategy. Before making the move to absorb a company, use these business tips.
Review Your Business Strategy
Take a good look at your game plan and see where the new company can make things even better.
Be clear on the purpose of acquisition: Is it to increase market share or gain access to new technology? If so, what is your timeline for achieving these goals?
Only acquire companies that align with your goals. They should complement or match your industry.
Don’t acquire unrelated businesses unless there’s an opportunity to leverage those assets in another part of your organization. For example, let’s say you’re buying a manufacturing firm but don’t need its products. Perhaps those manufacturing facilities could serve as an additional warehouse.
Check Your Finances
You will need enough capital to operate the business and pay new staff members.
If this is your first time buying a successful company, be aware that there may be some unexpected costs associated with acquiring their assets. Established companies usually come with liabilities like legal fees or property taxes. This affects how much money goes into operating costs each month.
Suppose you find yourself short on funds. In that case, you may need to explore creative financing alternatives, such as crowdfunding websites or loans.
Assess the New Company’s Financial Standing
You’ll want to look at the new company’s balance sheet, profit and loss statement, and cash flow.
The balance sheet will tell you how much money they have in their bank accounts, as well as what kind of assets they own. You’ll also learn how much debt they have.
Profit and loss statements show where all their money comes from and where it goes. The most profitable departments will be revealed in this document.
A cash flow statement shows you whether your potential acquisition is generating enough revenue to support itself.
Look for Weak Spots
Put on your Sherlock Holmes hat and start scrutinizing financial records, checking out the management squad, and analyzing the company’s operations to uncover any potential weaknesses.
Uncovering flaws can give you a leg up in haggling for a sweeter deal.
Speak to the Team
Acquiring a company without getting to know the team is like buying a house without checking the plumbing. It might seem fine on the surface, but you could be in for a messy surprise later on.
Get to know the company culture and learn what makes the staff unique.
Pay attention to the non-verbal cues the staff is sending out. Do they have pep in their step or are they dragging their feet? What new challenges are they facing?
After all this research, you should have a clear picture of what you need to bring to the table.
Do Your Due Diligence
Performing due diligence means taking the time to learn everything you can about the company and its value for you.
Start by looking at their reputation. Find out if there have been any recent scandals or lawsuits against the business. This will help you better assess how business acquisition might affect your customer base.
Besides reputation, their legal standing is also important. Make sure all contracts with vendors and other business partners are valid under current law. You should also be aware of any upcoming changes in legislation that could affect your industry.
Meet With a Lawyer
Your lawyer can help with the legal aspects of your acquisition, like making sure the contract between you and the new company is beneficial. They’ll also advise you on the tax implications of the purchase.
Don’t forget to have your lawyer double-check deals with other businesses. They’ll offer guidance on how you can deal with problems that may come up.
Suppose some other company decides to break ties with your business due to procurement. You can always count on your lawyer to guide you through the next course of action.
Closing the Deal
Once you’re satisfied with your research, it’s time to close the deal. Make sure you have a signed contract before exchanging funds. It’s important to clarify your expectations with the other party and make them part of a written agreement.
You should always be prepared for any unexpected events that may arise, like a wishy-washy seller or an appraisal that doesn’t meet your expectations. If you need to make changes to the contract, don’t hesitate to do so.
Absorb a Company to Start Your Empire
When you absorb a company, there’s a lot of prep work. Along with checking the financials and catching up with lawyers, you must make sure the team is on point. Current and new employees must understand the culture of your organization, appreciate its traditions and be trustworthy enough to help turn your acquisition into the start of an empire.
So how do you go about doing this? Explore our business articles for hiring tips and other resources that can help make your acquisition one of the best.
