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Salt Lake City Bookkeeping Blog

Planning a Business Acquisition? Top 5 Things You Need to Know

Posted by Leanne Armstrong on Mar 24, 2017 9:00:00 AM

Planning a Business Acquisition? Top 5 Things You Need to KnowMost established companies eventually reach a point in their development where the chance to acquire another business presents itself. While some entrepreneurs actively seek out new assets, others simply stumble across what seems like a golden opportunity for growth. In either case, the right business acquisition, in conjunction with the right business acquisition consultant, can successfully fuel your company’s plans for expansion.

If you’re hoping to extend your market reach by buying out a competitor - or by taking over a company with the potential to complement your own - you should consider acquiring a business consultant to help with the creation of a sound business plan.

A business acquisition is a complex affair that demands a certain level of research and analysis if it’s to prove successful. More than that, the very act of creating a business plan will give you the means to examine both the pros and the cons of your proposed procurement BEFORE you sign on the dotted line.

Here are five of the top things you need to know when planning a business acquisition.

1. Will it extend your brand message?

Just because a potential acquisition has been priced to pique your interest, that doesn’t necessarily make it a bargain. Any company that’s worth converting into one of the hardworking spokes in your company’s wheel, must have the capacity to extend your brand message. In other words:

Does it lend itself to improving upon the way your company currently inspires and motivates its customers to buy?

Much like the chapters in a well-written book, the various pieces of your enterprise should flow from one to the next in a way that makes sense to your clients. There are both risks and opportunities where customer and market demands are concerned. Be sure you identify and examine the ones most likely to accompany the business you’re purchasing.

2. Importance of the audit – financial and legal

Check, double-check, then check it all again. Knowing exactly what you’re getting into from a financial and legal point of view can’t be emphasized enough. While it’s easy to get side-tracked by optimistic predictions, acquiring a business consultant will help keep you grounded, and will ensure that you prepare and execute the necessary checks.

Ideally, financial statements should be created for both your own company, and the one you’re looking to take over so that you can realistically forecast your expected financial status down the road. In terms of legal checks, be sure to also dig into your acquisition’s:

  • professional reputation
  • shareholder or investor relations
  • internal conflicts
  • history of lawsuits

Don’t be afraid to audit anything and everything. A business that balks at opening its books to a prospective buyer may have something to hide.

3. Consider the daily operating costs

In any discussion of company finances, it’s important to consider not only the purchase price of your acquisition, but the daily operating costs attached to it. Past and future performance aside, understanding the price you’ll have to pay to keep your newest business engine running should be addressed in detail:

  • Are company properties owned, leased, or rented?
  • Are there overhead costs associated with your acquisition’s inventory or equipment?
  • Will you need to invest resources in employee payroll, benefits, training, or severance?

It can be worth taking the time to put together several years’ worth of balance sheets, income statements, and cash flow statements as a foundation for figuring out where, and how, your company’s finances will be affected.

4. Do company culture and values overlap?

Acquiring a new company goes far beyond the products or services it sells – often, that business will come with an entire team of personnel attached. Your culture and values are unique to your company. And one of the biggest challenges facing the acquiring entrepreneur is determining whether there’s enough overlap to make the dovetailing of companies seamless.

Talk to the employees and managers who will be contributing so significantly to your company’s success going forward. Are they a good fit beyond the skills and knowledge they bring? By evaluating how close that fit is, you’ll have a much better idea of the overhaul that may, or may not, be necessary to keep your business growing and developing in line with your vision.

5. Market conditions and value creation opportunities

A qualified business consultant can help you review your target markets - and compare them against industry trends - to determine what your new acquisition will contribute in terms of penetrating those markets, or meeting new objectives. The question is simple: will the business you’re buying increase your sales over the long run?

Consider the following:

Will a merge allow your company to offer new products or services?

Is there potential to add new accounts, or expand existing ones?

Does your proposed acquisition have an established competitive advantage?

If the company you’re hoping to buy is one of your own competitors, is there an ironclad non-compete agreement in place?

The main point to remember when planning any business acquisition is that seeking a fair market price is just the beginning. Any company you invest in should:

  • bring a solid customer base of its own, and
  • offer the proven means to acquire new clients

Does this merger really represent an opportunity to create new value for your company? Don’t make the mistake of trying to answer this multi-faceted question alone. The real key to turning your successful small business into an even more successful, bigger business is to enlist the assistance of a professional business acquisition consultant.

Topics: Small Business Consulting, Exit Planning, Business Acquisition