February 12, 2012
Business acquisitions can be great options for entrepreneurs who want to step quickly into an existing operation. There is no need to go through a hefty and risky implementation stage, as all that heavy lifting may have been completed long ago.
As an investor – entrepreneur, you need to carefully analyze an acquisition and to review many aspects attached to the acquisition of a business. Acquisitions are not risk free and as an informed entrepreneur, you need to conduct your own business case analysis to see if this is the right fit for you, or if establishing a business from scratch is the way to go.
Here are some tips and information on business acquisitions for your entrepreneurial considerations:
- Ensure you are well equipped and prepared in all capacities (operational, management and financial capacities) before undertaking business and acquisition opportunities.
- As part of your analysis, you must conduct a business valuation process. Business owners will have an asking price; you will need to conduct your own due diligence to determine fair market value.
- Part of your valuation analysis will be to break down the sale price on a business into the asset value and value attached to goodwill.
- It is always advisable to seek out a Certified Business Valuator (specialized accountant) to conduct differing levels of valuation depending on scale/size of the business.
- Seek out the assistance of a lawyer to help in the legal acquisition process and to help formulate legal acquisition agreements.
- Be aware of contingent liabilities and other owner’s terms and conditions.
- Look at key financial information, indicators and trends such as revenue, net profit, owner’s draw (salary), assets, liabilities, current ratios and profit margins. It is advantageous to have this discussion with a qualified accountant on financial analysis of the business.
- Check if the acquisition package comes with owner training or skill set / business training? You should consider at least a small agreement for the transition period, and not just have the previous owner throw the key at you and leave.
- Business planning will be essential, even for the acquisition of an existing, viable business. Prior to acquisition you need to develop a detail business plan, and you will need to approach sources to acquire the funding necessary.
- Analyze the projected operations, markets and financials surrounding this business going a few years into the future. What are the projected trends, prospects, opportunities and risks? Seek outside professional opinions where needed.
- The financial risk is less for existing viable businesses that have demonstrated a track record of earnings, profits and stable operations.
- No risky implementation phase vs. risk in a start-up scenario.
- Immediate access to cash flow, markets, customers, human and financial resources, and partnerships.
- The new owner can realize a potential immediate return on investment and equity, and depending on financing of the acquisition, realizes a break-even point sooner.
- Financing may be easier to secure, as financial institutions can see a track record of financial performance.
- Not only are you a new entrant by acquiring the business, but you may be decreasing the competition, as this business may have competed against you.
- Acquiring the intelligence, strategies, proprietary knowledge of the business and previous owner provides you with a competitive advantage.
As an entrepreneur you will need to decide what will be the best self-employment opportunity for you, whether to start a business from scratch, or to acquire an existing successful business. Always seek professional services to help inform your decisions on opportunities.
© 2012 Strategy Plan One
Business information, resources and tips for the entrepreneur