It’s no surprise to anyone that buying a business can be a very complicated, but exciting, thing. There are lots of interesting opportunities as well as possible pitfalls that can be encountered through the process. It doesn’t matter if you are a first-time business buyer or an entrepreneur with a well-established business empire, the purchase of a business requires deep thinking, strategic planning and a careful analysis of many moving parts. In this article, we will go over seven things that we think are important steps to consider as part of the process and, ideally, should set you up for success when you acquire that new business.
1. Assess automated processes
This is something that many people might overlook, but it can be very useful. Take an inventory of the business you plan to acquire and note down its current processes, paying special attention to anything that might be automated. Automated processes are a great time saver and often enhance efficiency and streamline operations business-wide.
Any business that already has several automated processes working, such as an automated free invoice template, inventory management or customer relationship management (CRM) software, should be considered as worth a little more than businesses without. Looking over your inventory of a business and identifying processes that aren’t, but could be automated, is an easy way to see a path towards increasing the value of that business simply and efficiently.
2. Conduct thorough due diligence
This is critically important, you need to know everything about the business you are acquiring. As sad as it is to say, you can’t just trust the previous owners’ assurances, you need to check for yourself and be diligent about it. A comprehensive review of all of the company or business’s financial statements, contracts, legal documents and operational processes is critical.
It could even be well worth your money to hire outsiders with no stake in this review other than that you’ve paid them for the service such as accountants, lawyers, or business valuation experts. You should especially be looking at things like customer contracts, any pending litigation, regulatory compliance across the business and the trends of the incoming revenue.
3. Evaluate market and industry trends
This is an important step early on in the process of acquiring a business. You want to make sure of the business’s position within its competitive landscape. While it’s unlikely that a business on the top of its specific market is going to be sold unless it’s a pricey acquisition, it’s still important to be aware of exactly where the business you want to purchase is sitting.
You should research market dynamics, emerging trends in the industry and the preferences of any consumers that make up the business’s target demographics. Evaluating the strengths and weaknesses of the business in relation to its peers and seeing that it has room to grow in the market can be the key to seeing a path forward for an otherwise unappealing acquisition.
4. Understand the financials
You should conduct a thorough review of the business financials. By analysing key factors such as the profit margins, debt obligations, revenue and cash flow you can peer beyond the surface-level numbers and glimpse the true sustainability and profitability of the business. It is important here to be aware of things like market fluctuations and keep an eye out for any opportunities you might have to cut costs across the business.
5. Negotiate terms and structure
The terms and structure of the deal you are negotiating with the previous or current owner of the business you want to acquire is an important part of the process. You should try and form a good relationship with the seller and be honest with them about how you see the business’s value and its growth potential.
By considering contingencies, warranties and financial arrangements as well as payment terms you might be able to come to a more agreeable deal for both parties. Making sure that the deal is negotiated with legal and financial advisors is also an important factor in ensuring a fair deal for all involved.
6. Plan for transition and integration
Ensuring that the transition between owners is as smooth and free from disruptions as possible is an important part of making your new business profitable right from the start. Speaking with your new employees and letting them help you develop a transition plan that includes milestones, timelines and responsibilities will aid in this. One of the most important things you can do is, to be honest and open with all of the different individuals that might be involved in this process.
7. Focus on long-term growth and sustainability
You might be focused on trying to get your new business earning for you right away, but it might be better to instead accept that you will take a hit early on and to have a plan focused on long-term growth and sustainability. Investing in areas like product development, marketing and talent acquisition will ensure that your new business doesn’t stagnate after you acquire it. Monitoring how the business is performing and being ready to adjust plans as needed is also a good way to find profitability in your new business.
To conclude, the purchase of a business requires a whole lot of planning, research and clear-headed strategic decision-making. By following or at least considering the steps we laid out above, you are setting yourself up for a more successful acquisition process than someone who blindly rushes in. The most important thing you can do when acquiring a new business is to prepare and be diligent, doing so will help you to reach your entrepreneurial ambitions.