Questions To Ask When Buying A Business
It’s tough to compete in today’s business world. It was always tough, but now so much more is required to set up and run a successful business. Starting from scratch isn’t always the easiest avenue, so people today are looking at more options for company growth and expansion than ever before. The climb up the mountain from start-up to sustainability has become too great or too financially risky and thus acquiring an established entity continues to gain popularity, especially with so many existing business owners of the ‘boomer’ generation beginning or actively looking for exit strategies. A history of proven financials, ongoing customers and revenues, phones that continuously ring and systems and knowledge that have been built to serve those customers successfully all lead to the appeal of acquisition as compared to stepping into the unknown of the start up world.
However, before you jump in to acquisition mode give some consideration and ask yourself these questions:
1.What’s The Key To Success? If you think buying an existing company is an option for you, then understand that the buying process and transaction are vastly different than any other type of purchase you have ever done. In the acquisition world so much more depends on what is done beforehand to prepare and investigate to see if it will be a success after. Due diligence is not just about reviewing financials, searching for liens and counting inventory. It should also be about the culture, the plan, the people, the transition and everything else that will happen after the deal is closed. Success is defined years after the purchase or acquisition, so making sure the time and investment is spent before the pen goes to paper at that business closing to make sure it is going to work for your plans is key.
2. Is the Value There? The value of a business or company is typically calculated based on historical cash flows with asset values as well as adjusting for a number of factors including deal terms that impact value (asset sale v. stock sale). The sale price and entity cash flows should be reviewed during the due diligence period to ensure the selling price is justified and the payments are sustainable with your projected future cash flows. Making sure someone who is knowledgeable in this area is providing you an opinion and taking into account the key value-drivers and the concerns for post-closing success is a necessity before jumping in.
3. Is buying a business right for you? The acquisition marketplace is as active as ever, but finding the best opportunity for you or your business to make sure it is a success takes time, planning, and saying no to certain ones that just don’t fit. While success and growth are certainly not guaranteed to follow, a well thought-out and implemented purchase can go a long way toward achieving your or your company’s growth and income goals. Careful planning, thorough due diligence, and some hard self-evaluation should always be performed before you make the commitment required in buying a business. It is a unique process and having the right advisors from step one can ensure that success is achieved and missteps are avoided.
We are here to help you answer these questions and consider all your options.
