An effective strategy for a good buying/selling decision.
Acquiring a business can help you grow your goals and diversify your business by giving you access to an established customer base, new products, equipment or markets, or by eliminating a competitor.
Business acquisitions are also much more successful when carried out in a well-structured process. Companies that adopt a structured approach to acquisition are 94% more likely to experience high growth three years after acquisition.
In this article, we will give you four essential questions that entrepreneurs need to ask themselves when they consider making a purchase.
1. Does acquisition make sense?
Don’t go ahead with buying a business just because you have capital. You need to have a clear vision and strategy of what your business needs will be for the next few years and how the acquisition will enable you to achieve them.
If the business acquisition will allow you:
- Increase your market share;
- Improve your situation vis-à-vis your competitors;
- Give value to your shareholders;
Advice: Avoid impulse buying. Your accountant, business advisor and bank advisor can help you identify whether an acquisition is ideal for you according to your expectations.
2. What will be the impact on your business?
The acquisition of a business will push you to financial obligations and operational changes that can deplete your cash flow in the short term. If you don’t pay close attention to these changes, your business may become out of control.
You should also seek financing to establish a structure that allows you to reinvest in the acquired business. Each acquisition is different, but experts generally advise entrepreneurs to obtain diversified sources of financing, which may include vendor financing, term debt, mezzanine financing and minority ownership.
Advice: Proper planning helps you to assess the impact of an acquisition on your working capital and to properly organize your balance sheet.
3. Do you have information about what you are buying?
You have to be wary when you’re buying a business. They could tamper with their books or be sued. Financial statements do not always reflect reality. Many entrepreneurs realize that they have paid too much for their acquisition.
If your due diligence process is reasonable, you should also pay a fair purchase price.
Advice: It is important to conduct a thorough review of the financial records, legal issues and market positioning of the target company to ensure that you will not have any costly surprises after your purchase.
4. How to create the most value after the transaction?
Buyers must have a concrete plan to change the way the business operates, rather than simply buying and maintaining its current state. If you are paying for today’s high multiples, you will need an excellent post-acquisition value creation strategy. Several funds are paving the way by using technologies and analytical data to increase the value of their investment.
Advice : Faites des analyses pour déterminer où et comment créer le plus de valeur après la transaction, afin atteindre vos objectifs d’affaire.
Technology can help you more intelligently reduce your time for a business acquisition. Digital systems will make it easier for you to get accurate information about the company. To do this, Openfair offers a set of services that will quickly put you in the process of purchasing your future business.
