Acquiring another business is one of the quickest ways for entrepreneurs to fuel growth, but it’s not a foregone conclusion.
In fact, business acquisitions are risky business. The majority of them do not meet their originally stated goals and some end up hurting more than helping.
With this in mind, it’s important to perform some self-assessment to see if you and your business are ready for such a big move.
Here are the key questions you need to ask yourself?
Do you have an acquisition strategy?
An acquisition strategy involves the development of what you expect your company to look like after the acquisition has been completed. How are you hoping an acquisition will help your business grow?
It’s worth carrying out a full-blown analysis of your business’ strengths, weakness, opportunities and threats. This type of SWOT analysis and will allow you to get a full picture of how an acquisition can help you build on your strengths, improve your weaknesses, and grow efficiently. You’ll develop a clear idea of how much change a company needs and how an acquisition can help this. It’ll give you a strong basis for dialogue with the owners of other companies and this is so key. One of the key reasons that acquisitions don’t pay off is poor communication on the expectations of what will happen.
Can you finance an acquisition?
Before you even begin searching for companies to acquire, you need to investigate how the deal will be financed and what your budget is. Nothing will kill acquisition talks faster than admitting you’re not sure how to fund the deal. Here are the three most common methods of funding an acquisition.
- Through existing investors: If you develop an acquisition strategy properly, it should be possible for you to encourage existing investors to help fund an acquisition. After all, it’ll often appear a lot less risky to fund the purchase of a successful business than it would to finance the development of an untested product or service.
- Banks: One of the main reasons that banks were originally created was to provide finance for businesses and grow the economy. You’ll need to present your acquisition strategy to your bank too, as it will conduct an assessment to determine your investment risk.
- Outside investors: There are many investors out there who concentrate solely on funding acquisitions, so there’s a strong possibility that they could present an option to you. You’ll need to find them and negotiate terms though, which can take a lot more time than the first two options.
Are you ready for the extra work?
Acquisitions are no walk in the park. You’ll need to appoint professional advisers, both legal and financial. Due diligence will need to be carried out.
You’ll need to be involved in the valuing the business, making an offer, negotiating it and finalizing terms, communicating the deal with existing staff - and that’s just before the acquisition takes place.
Once it is completed, there’ll be a lot of work to ensure that the goals you laid out in your strategy are met.
At Succession Link, we make it simple to find the perfect individual to buy a business from. Click the link to learn more about our business model.