Think before you buy
Acquiring or merging with an existing business can be an effective strategy for building a stronger brand, entering a new market and/or gaining expertise or intellectual property and can help you give your business a boost when market conditions are challenging.
Of course, this will only happen if you make the right deal at the right time. So the first step is to figure out your acquisition strategy – what are the gaps you are looking to fill? Are you looking to increase the geographical coverage of your business, enter a growing market quickly or acquire a product or service that you feel has significant growth potential?
Be prepared to spend plenty of time on this stage of the process. You might know your own business but you will need to understand the broader market if you want to identify the right business to take over.
The best deals will create economies of scale and introduce complimentary skills and experience, but given the challenges of raising finance in the current economic climate you can expect any funding provider to ask a lot of questions about your business as well as the one you plan to acquire or merge with. Be realistic about the amount of due diligence involved and try not to get frustrated.
Consider engaging a third party to manage the process. Even the most straightforward transaction can take months to complete and you cannot afford to let your existing business suffer because you are distracted. This might be the only deal of this type you ever make so give yourself the best possible chance of getting it right.
Finding the right business to buy takes time so you need to be proactive if you really want to make an acquisition. Small businesses have a tendency to wait for opportunities to present themselves rather than going out and finding them and also to let discussions drag on.
This is another reason for getting external assistance. Accountants are often aware of business owners in their network who are looking to sell and can connect you with specialist advisors who understand the process.
Most sellers will enter negotiations with more than one potential buyer, so if you don’t stay focused on getting the deal done you could get dragged into a drawn-out process or worse still, a bidding war with a rival buyer.
Minimise your risk
Once you have started the acquisition process, you may want to speak to the business’s major clients and suppliers to reassure them that it will be business as usual when the deal is done. The value of existing contracts will be one of the main factors in setting the purchase price so you don’t want these relationships to be strained or even broken by the time you take over.
You also need to think about how you will integrate the new enterprise into your existing business. Will you still be in charge? Whose premises will you use? Are there any contracts in place that might need to be renegotiated?
Finally, be realistic about what the deal is worth to you. The financial information generated by a cloud based accounting solution such as Big Red Cloud will help you decide how much you can afford to pay for the business.
In the next blog post we will look at the M&A process from the perspective of the selling company.