The time has come to look into expanding your business. One of the ways to do this is through business acquisitions, where other businesses are purchased and integrated into the existing business. Though there are various reasons for this, the steps taken through the acquisition process will be the same. Before hiring a business broker or starting the search for a business to acquire, it’s a good idea to know what to expect. This Essential Guide to Business Acquisitions will get you started down the right path.
Develop a Motive or Strategy
The first step is to establish the motive for acquiring other businesses through business acquisitions. Often, this is done to help the business expand, but there may be more specific reasons as well. This includes buying for more leverage, scaling the business quickly, helping transform the business, to diversify the business, and more. Narrowing down what the goal is can help with developing a strategy for how to find the right business to purchase. This Guide to Business Acquisitions is not meant to be an all, inclusive guide. Instead, it is meant to give you an outline of what is involved in an acquisition, if you have never done it before. As you begin the process, refer back to this Guide to Business Acquisitions to help you remember important steps. Buying a business for your existing business can also fill in gaps in your own business for a later, potential sale, someday, for your business.
Define What to Search For
What should the business have? Buyers will need to consider what they’re searching for carefully, as this will help narrow down all of the options. They may want to consider the market the business operates in, the client base, the price range, the market share, the range of products, the geographic location, and more. All of this can be used to determine which business should be purchased compared to similar businesses, when considering other business acquisitions.
Start Researching Businesses to Buy
With a good idea of what to look for, the next step is to start researching the options. A business broker can help the buyer determine which businesses meet their needs and help them find a variety of businesses to look into further. Keep the search criteria in mind to not only narrow down the options but to evaluate the businesses as well.
Plan for the Acquisition
Once the buyer has a few options in mind, they’ll want to speak with the business owner. This lets the owner of that business know that the buyer is interested in an acquisition. The goal for this part of the process is to gain more information and determine if this business owner or others are interested business acquisitions in the first place.
Do an Analysis of the Value
If everything has gone well to this point, the next step is to do an analysis of the business’s value. The buyer has the opportunity to learn more about the current financial state of the business as well as other information that can help the buyer determine if this is a suitable company to acquire.
Meet With the Business Owner
After the initial discussion and initial financial due diligence, the buyer will want to meet with the business owner to discuss the potential acquisition. It is a good idea to do this to learn more about the business’s culture as well as to get on good terms with the business owner, since they will need to help with the acquisition and integration.
Make an Offer for the Business
If the buyer is still interested after analyzing the value, the next step is to make an offer. This should be detailed and include what the owner of the business has said they might accept if they received an offer. It is important to make sure the offer matches the valuation, as the offer being significantly off can stall negotiations and end the potential sale before it has begun.
Negotiate a Price
If everything goes well through the due diligence period, the buyer and the business owner can start negotiating the final cost. This includes more than just the purchase price, though. Negotiations can also include whether the business owner will stay on as a consultant, what happens to the business assets, how current employees are handled, and more.
Do Your Due Diligence
After the business owner accepts the offer, the buyer will need to do due diligence to find out more about the business. This is where they get as much information as possible about the business they may acquire, including any potential issues. It’s imperative the buyer goes through the information carefully and makes sure they do still want to acquire the business.
Create a Purchase Contract
With everything negotiated and due diligence completed, the next step is the final purchase contract. The buyer and business owner will need to agree on the terms of the purchase and the type of contract to use for the acquisition, be an asset or stock purchase. Business owners working with a business broker can get help with the creation and signing of the purchase contract.
Finalize the Financing
The buyer should know how they’re going to finance the purchase ahead of an LOI. However, the details of the financing will be needed before the purchase contract has been created and the agreement has been signed. Buyers do have a variety of options to use, so they will want to find the right one that fits their situation.
The closing will include the signing of all of the documents needed to complete the sale. At this point, the acquisition begins, and the buyer will be obtaining the business to help it integrate with their own. It is a good idea to have a business broker working with the buyer during this step to make sure there are no issues.
Integrate the Businesses
Though the closing is the final step of the acquisition itself, there is one more thing for the buyer to do. They will need to work on integrating the business they have purchased with their existing business. This can take some time to do, and it is a good idea to work with the previous business owner to make sure everything goes smoothly.
Though the process for business acquisition can be lengthy, this is needed to make sure the acquisition is a sound decision and that the buyer is purchasing the right business for their situation and goals. If you’re planning to buy a business in Austin TX, talk to a business broker today about what you’re looking for and what you may want to do. They’ll help you through all of the steps mentioned here and make sure you are able to find the right business then finalize the acquisition. Hopefully, this Essential Guide to Business Acquisitions will start you thinking about what is involved in buying a business for current business owners.