When a business goes up for sale, it’s a common reaction to wonder “Well, what went wrong with it?” as you weigh the pros and cons of acquiring it. Owners sell their businesses for a myriad of reasons, and it’s not typically bad — reasons range from wanting to retire to wanting to strike out fresh in a new industry. The owner put years of hard work into building the company, and they want to find the right buyer.
Buying an existing business presents much less risk than running a startup company. For the entrepreneur, an acquisition can be just what your business needs to grow. You have concrete profit and loss statements with a strong history of sales, and the established business clearly has growth potential. It may need a nudge in a new direction, but it sparks your interest — and you’re ready to buy.
When the stars align for seller and buyer, it’s easy to get lost in the dream of future. But before you buy a business, you have to prepare for the acquisition. Don’t get ahead of yourself financially, and consider these four need-to-knows for acquiring a business.
The importance and impact of work culture during acquisition are typically overlooked. How can you preserve the good and evolve the culture with the acquisition? Look at core values, mission, structure, location, environment and expectations.
When you buy a business, you acquire a new work culture. If you don’t manage the cultural shift, you can have problems for years down the line.
You must streamline the internal operations of two companies. Once acquired, would sales teams work on a new product or remain with the current one?
You don’t want to confuse your customers. Interactions must shift but also make sense on both sides of the equation. Employees are well-versed in their existing systems but must also go with the flow as the systems come together What plans will you make to support these shifts?
How will you handle the alignment of pricing models? An acquisition opens up the potential for adding new products to your sales teams to market to existing customers.
It’s easier to sell new products to your customers than it is to market new products to new customers, but the pricing models must align. A customer used to one model may leave when presented with a model they can’t follow, such as adopting a subscription-based system over a permanent license. Avoid that headache, and pay attention to reconciling the differences in billing and pricing structures before you buy.
4. Due Diligence
Don’t do your due diligence alone. Consult with an acquisitions expert to assess the health and value of the business. Check company finances to ensure a sound acquisition, but look beyond the cash flow value. How do the existing owner’s expertise and connections contribute to the value?
This process can and will take many months. You should work with an experienced team to conduct an in-depth analysis of the following areas: strategic position, operational assets, financial data and legal matters. The ins and outs of the process vary per industry, and working with an experienced team will save you more time. You will make a sound acquisition.
The target company will also be required to offer up a disclosure schedule that addresses these key areas and any exceptions in the acquisition agreement. The document may be revised several times before delivery to you, the buyer.
Conducting M&A due diligence in the global marketplace is a high-pressure, demanding undertaking which requires considerable expertise skill. You must also consider company culture, streamlining and pricing. Be prepared for due diligence, and the process will go more smoothly and quickly to best serve the interests of both parties.
Before you buy a business, you must first prepare for the acquisition. Contact Sun Acquisitions to build your expert acquisition team from our many experienced advisers.