10 steps to take in acquiring a company
Acquiring a previously established business is a great responsibility that has advantages but also risks. That is why it is important that you do the necessary research and understand the factors that can affect the success or failure of this company. Do not make an offer or wait to close the transaction until you have read these points that will help you make a better decision.
First, ask yourself a few questions. Acquiring a business is a big investment. It's not a game you can take lightly. To clarify this point, ask yourself the following:
Is the business in a field in which I have experience?
Entrepreneurs don't need to know everything about the business they're interested in acquiring However, it helps to have some familiarity with your industry. Otherwise, you'll spend most of your time trying to catch up.
How will I benefit from the purchase?
Does the business already have a proven concept? Solid revenues? Loyal customers? Are your products or services in demand?
Why is it for sale?
This is a conversation you should have with its current owner. You can analyze how long the company has been operating, how is the current leadership and revenues over time. Don't be afraid to ask why the business is for sale either. The reasons may vary. If the response you receive sounds suspicious, continue with due diligence to clear your doubts and determine if you continue or stop.
What do I need to operate it?
Will you need to hire more employees? Rent a new office? Present specific permissions to stay in operations? This is all very important.
Am I passionate about this business?
You want to buy a business or know a few things about its industry. Remember that no business grows under disinterested leadership, so it is necessary to know what will be the entrepreneurship that occupies you in the following months of your life.
Perform scouting with a lawyer and an accountant
Start doing due diligence on the business. Learn as much as you can about the background of this company. It is recommended that you do not do this alone. Hire a lawyer and an accountant to help you.
Accountants can help you understand the financial background of the business, evaluate its financial statements from previous years, and determine the costs involved with its purchase. Attorneys can help with the compilation and writing of key documents. Some of these may include tax returns, contracts and leases, a certificate of good standing, and a letter of intent, the latter of which is issued by the seller when both parties have agreed on a price proposal.
Evaluate the price of the business
Before you finalize your decision to buy a business, there is one more important step: the buyer and seller must agree on a price. This is where many transactions fall apart because buyers and sellers often place very different values.
There are many factors that can vary this value. For this reason, if you are not an expert on the subject, you can hire the services of a professional to evaluate what you are about to buy.
Determine how you will finance the business
In general, most entrepreneurs who buy businesses need some additional capital. You can't take the big step if you don't need where the money will come from to do it. You can apply for a loan, use personal savings, borrow from a family member, among others.
In addition, being able to repay a business is not just about the initial financing. Consider the expected cash flow and financial demands over time. After all, there may be unforeseen and costly conditions associated with buying and owning a business.
Prepare the sales agreement
If everything is in order and you are convinced, it is time to close the deal with a sales agreement. Work closely with an attorney when creating this document and have them review the terms before signing the documentation. Once you have signed, congratulations! The business is now yours. This is an exciting time. Great successes, as well as some challenges, are to come.
Pros and cons of buying an established business
To make you feel more relaxed and better informed, you should review the pros and cons of acquiring an existing company.
Make sure you know as much as you can about the successes, failures, challenges, and future opportunities of the business you're analyzing. In addition to talking to the owner about these concerns, also talk to existing customers, employees, locals in the area, neighboring businesses, etc. They will give you an honest view of how business is going, without the bias of the salesperson trying to convince you to buy.
Although evaluating and buying a business already underway is not an easy task, you will be rewarded when you are finally in charge. You will be able to revitalize and print your seal with your own ideas and new leadership.