Acquiring a business can be a lengthy process. It can also be an exciting one, and there are a few things to consider before jumping in with both feet.
To avoid discovering nasty surprises after the purchase, you should consider the following before acquiring a business to ensure it’s the right move:
Find out why the business is for sale
When a business is for sale, the first question you should ask is “Why?” Many business owners seek to sell as a way out of difficult situations such as potentially crippling debt. Speaking with the owners, key employees and customers about challenges, issues with the business model and other problems can help you assess the risks before you move forward with the acquisition.
Do your due diligence
Before you acquire a business, be sure to do thorough research, otherwise known as a due diligence review. During this process, you’ll want to check all facets of the business. This will include at a minimum the business’s finances, contracts, vendor and supplier relationships, permits, litigation and insurance history, HR records, tax returns, condition of material assets, corporate or entity documents, and other particulars to uncover potentially hidden surprises. Consider whether you need a transition period with existing management, employment contacts with key personnel, or non-competes from individuals who might not stay on board. Not only will this process help prevent unwanted discoveries post-purchase, but it will give you an opportunity to evaluate whether you have the resources to take on any discovered challenges.
Evaluate whether the business will succeed
While you’re doing background research on the business, you should be asking yourself whether it has the potential to grow and thrive under a change of ownership. What about your businesss strategy or resourced can propel it to success? If it needs capital investment, will you have the resources needed? If the business requires intensive management, do you and your team have the capacity to take it on?
These are all important questions you need to answer before moving forward with the purchase.
Taking careful steps for the future
You may be eager to finish the acquisition process as soon as possible, but being patient with the process can save you money in the long run and ensure that you are making the right decisions. Taking careful steps to learn everything you can about a business will benefit you moving forward.