Business Acquisitions: Why now, what to watch for

Business Acquisitions: Why now, what to watch for

“To make our revenue goal for 2022, we’ll have to make an acquisition. We know of a few business owners related to ours who want to get out, and now is probably a good time to acquire another business. What should I look out for?”

Some companies are more prepared than others to do a takeover. Not all acquisitions work out well. For the savvy small business owner, acquiring another business can look like a stroke of genius.

Key things to watch out for

1. The business should be an excellent strategic fit for you. There are reasons to make an acquisition, but it has to be the right company, in the right industry, with the right products or services. It’s no use trying to fix a failing business by bolting on another one – that’s just two weak companies struggling together.

2. Do your due diligence. This is the most critical part of any acquisition. Understand what you’re getting into – the financials, the contracts, the staff, the customers, everything. Don’t take anything at face value – get professional help if you need it.

3. Have a plan. Once you’ve done your due diligence and decided to go ahead with the acquisition, you need to have a clear plan to integrate the two businesses. This is where many investments fail – the two companies end up like oil and water, never really mixing.

4. Prepare for the worst. You can expect some tricky and stressful moments when it comes to acquisitions. They’re not perfect, so be prepared for anything! Have a contingency plan if things don’t work out as planned.

Just as Rome wasn’t built in a day, so are successful acquisitions. It takes time to bed down new staff, new products, new customers, and new systems, and give it some time before deciding whether the addition was a success.

Business Acquisitions: The Good and the Bad

Business acquisitions can be a great way to expand your business and increase your market share quickly. However, they’re also risky. If you’re thinking about acquiring another company, it’s essential to do your homework first. Make sure you know the company’s finances and potential risks before committing. It’s also necessary to have a clear plan for integrating the two firms. Done right, business acquisitions can be a great way to grow your business. But if you’re not careful, they can also lead to big problems down the road.

When it comes to business acquisitions, there are a few key things that your company will want to keep in mind. First and foremost, you’ll want to consider what the business will add to your company portfolio. What does the industry do? What products or services does it offer? How does it fit into your existing business? These are all critical questions to ask when evaluating a potential business acquisition.

Additionally, you’ll want to consider the financials of the business. Is it profitable? Does it have a strong balance sheet? What is the potential for growth?

With so many businesses out there, it’s essential to do your research before investing time or money.

By keeping these factors in mind, you can be sure that you’re making a wise decision when it comes time to acquire a new business.

Put someone in charge, starting with opportunity evaluation.

Make sure that your team can:

  • assess the profitability and viability of the deal
  • secure what it is that you’re buying – so that it won’t just drift out the door once the sale is made
  • get leverage out of the contract by combining efforts in some areas

As an acquirer, make sure you’re ready.

Rate your company on the following items, from 1 (not at all prepared) to 4 (totally and completely ready):

  • management team in place 
  • know what business the company wants to be in
  • capital reserves in the area to do a deal
  • strong funding relationship to support the deal
  • learn the hard work begins once the acquisition is completed
  • staff ready, willing, and able to step into the acquisition
  • match core company’s strengths and weaknesses to target company’s
  • cite ten clear reasons for making the acquisition
  • estimate marketplace changes within five years – and how that will help/hurt an acquisition
  • aware of how government regulation impacts both businesses’ futures

Get a score of at least 30 or better, and it may be time to proceed. Under 30, you have some prep work to do. 

When considering a business acquisition, it serves to be a pessimist.

Things often go wrong, and the odds are against the acquirer. 70% – 80% of all purchases deliver less value than anticipated, with many ending as outright failures.

What goes wrong? There’s no solid plan for taking over. Hourly personnel is not secured with employment contracts, and they are allowed to bill hours without proper supervision. People aren’t clear about who they report to. Customers wonder who to deal with in the future. Proposals are left hanging. Vendors aren’t managed and aren’t integrated into the company’s buying programs fast enough. Goods get lost. The list goes on…

Once the deal is final, the real work begins. Have a team of people ready to step in. Please make sure everyone is clear about their assignments: get control of the books and bank accounts, see to employees, manage payroll and production, get arms around customer list and meet with most customers quickly, find out what’s in the sales pipeline, start marketing advantages of the deal to customers, prospects and vendors, meet with vendors and inform them of the company’s new buying practices. 

Once the dust of the takeover settles, it’s time to think long-term.

Are there enough prospects? What will the acquired company products, and what will be rolled into the acquirer? Which employees are keepers? Which customers need to be turned around or cut loose? Will both businesses make money, or does more need to be done to turn a profit? 

So, if you’re thinking of acquiring another company, it’s essential to keep in mind the many factors that go into a successful acquisition. Our Buy/Sell Advisory service can help you navigate these waters and make sure your dream of jumping forward quickly doesn’t turn into a business nightmare. We have the experience and expertise to help make sure your purchase or sale goes as smoothly as possible so that everyone comes out ahead. 

Contact us today for more information!