Six steps to take before acquiring a new business

Mergers & Acquisitions | Reports | Sponsored

Acquiring a business rather than starting a new business means that you have an immediate cash flow, an existing customer base, assets and an established brand. This eliminates a lot of the risks that come with starting a new business including making customers aware of the products and services you are offering and obtaining new customers.

Below are seven steps to taking before acquiring a business:

  1. Find a business that interests you

Consider your skills and personal interests. Look for a business in an industry that you have experience in or have a lot of knowledge about. The more that you already know about the industry, the more value you will add to the business, giving it a greater chance of long-term success under your management.

However, you should try to choose an industry that is predicted to grow in the future as this will make it easier to grow your company. If the industry is stagnant or declining you will be relying on acquiring customers from competitors rather than finding new ones.

You should research when the best time to buy into your chosen industry is.

  1. Consider your options

You should find as many good acquisition candidates as possible to allow you to fully compare your options.

You should contact business brokers to find companies that are for sale. Local attorneys and accountants may be aware of other companies that have not officially been listed for sale but may consider an offer.

  1. Secure funding

When you are at the stage of making an offer to a business, you should already have multiple funding options secured.

They are several sources of funding that you could consider including bank finance, financing from family or friends and equity finance.

Lenders often require the accounts for the last three years, details of the business, financial projections, details of your personal assets and liabilities.

  1. Select the company you want to buy

Do an independent valuation of the business to check that the asking price is fair, this may also give you some room to negotiate on the price. You should also perform a thorough analysis of the company and analyse their historical financial statements and projections.

During due diligence, you should ask the current owners about any potential problems such as lawsuits or liability issues. Once you buy the company, you acquire all of its debts and assets.

You should also interview key members of staff prior to the acquisition to find out if they intend to stay with the company after you take over as losing key members could be costly to your business if you have not planned to replace them from the outset.

  1. Put together a post-acquisition plan

You should not base your acquisition decision on the company’s previous financial history, you should base it on the growth you are hoping to add to the business and how you believe you can make it more profitable.

You should create a five-year plan outlining the basic strategies that you intend to implement after taking over and a profit and loss statement. If you are satisfied with the potential shown in your projections, you should make an offer.

  1. Take appropriate advice

Professional advice and help are invaluable as you go through the valuation, negotiations and purchase processes. Use an attorney who is skilled in business acquisition transactions. This will make the transaction smoother.

At Four Wealth Management, we offer a small business financial planning service to help you to assess the financial history and projections of the company before you buy it. We can also help you to create a long-term financial plan for the company after you acquire it.

Book a no-obligation consultation today on 0117 973 0500 to discuss financial planning for your business.

Four Wealth Management Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website at www.sjp.co.uk/products.

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