Tips for Purchasing Businesses
As a business owner, you are probably consistently searching for new business opportunities that will allow your company to grow and expand. Purchasing other businesses is a way to expand rapidly, but these purchase decisions are complicated. Not only do you want a company that will increase your profits and success, but you want one that makes sense for you. These are a few tips to help you make your decision about potential business acquisitions.
Identify Your Goals
Your first step as you decide to expand your business through acquisitions is to identify your goals. Then, evaluate why you are interested in a specific company. For example, will you be moving into a new market? Are you trying to reduce or eliminate your competition and gain their clients? Is there a complementary product that you think would add to your profit margins and customers’ satisfaction? Examine whether your motive for choosing a specific company lines up with your business goals.
Review Your Financials
Business acquisitions are major investments. You need to ensure that you are not placing yourself in a poor financial position by purchasing other companies. Therefore, review your current financials. Are you earning a hefty profit? Can the company stand on its own? Is there growth? Your current business should also have the capacity to support you through your transition period.
Then, evaluate the financials of the company you hope to purchase. Look over the company’s working capital, debt and earnings. Evaluate its earnings over its lifespan.
Also, learn about any financing options and their short- and long-term costs. Work out a cash flow statement to calculate future earnings potential and expectations. Finally, look for ways to pad your budget so you are not surprised or damaged by unexpected expenses.
As you look through the financials of the company you hope to purchase, review their products and processes. Look for untapped resources and inefficiencies that you can exploit and improve upon. Then, review your current business to determine what changes you should make as the two businesses merge. You will inevitably be able to reduce redundancies, but go beyond this and search for ways that the companies can be used to complement each other.
As you develop your acquisition plans, create a timeline for your purchase and the implementation of your changes. Keep track of your progress.
Business acquisitions can be scary, but with a solid plan, you can expand your business and increase your earnings. As you speak with advisors, make sure your goals are clearly written out, your financials are in order and you understand all the opportunities this acquisition can bring.