If you have been an entrepreneur for a while, you might have a reservoir of capital available that can be used to purchase smaller companies.
However, there is more to a great acquisition then simply purchasing a profitable company. In this article, we will share insights that you should internalize before chasing after a business to acquire.
1) Get advice from business consultants
If this is the first time that you have sought to acquire a business, there are many things that you may not be aware of that an expert can help you out with.
If you try to go it alone and trust your untested instincts, there is a good chance that there may be aspects of a business that you’ll overlook, which can end up costing you tons of money.
By getting in touch with firms like Generational Equity, you will be able to access the kind of advice that will make your first acquisition one that is free of fatal mistakes.
2) Make sure their books are in tip-top shape
This is one of the most important things that anyone looking to acquire a company should be concerned about. Some people that are trying to sell their business will tell you anything you want to hear in order to offload their company.
If you don’t ask to review their books, they’re not going to voluntarily do it, especially if there’s anything in there that might jeopardize the sale.
It is on you to do this. You need to be satisfied that the company that you are about to buy is at least solvent. Ideally, it should have healthy revenues, fat profit margins, and minimal debt load.
If you do not know what to look for, hire a professional auditor to go over the books, as they will know what to look for when it comes to problem areas, and they will know what the finances of a healthy business look like.
3) Evaluate the company culture of the other business
Given that you have spent many hours within the walls of your own business, it can be easy to overlook the fact that different companies have different office cultures.
When acquiring a competitor, it is important that you learn about the values that govern their workplace.
If there are any differences, you will want to plan how to communicate your values to the employees that you end up bringing into your company.
You may also want to evaluate aspects of their culture that might be of value to your current employees, as it will help to engender a sense of team spirit among those that are coming into your business.
4) Will this acquisition add value to your operation?
Many times, entrepreneurs will seek to acquire companies because they think that swallowing up their competitors will magically increase their own profits. However, you should be focusing on how acquiring a specific company will add value to your operation in the long run.
Does the company you are buying have patents and proprietary technology that will turbocharge your growth efforts? Do they have talent that you are lacking in your current employee base?
These are just a couple of examples that may or may not apply to your situation. Only you know what your company is lacking; a good acquisition should help you fix weaknesses in your operation.