Buying another business? Careful planning can ensure smoother sailing.
Expanding your commercial holdings can be an excellent way to increase your presence in today’s business world. And with the proper preparation, you can clear the typical hurdles such as budgetary problems and rough transitions. Here are some things to think about as you ponder the purchase of another business:
1. What’s the health of your current company or companies?
Make sure your assets are in place and you have the personnel on hand to help you make a smooth transition. Finally – and just as importantly – find a strong financial institution with experience in commercial banking and acquisition financing to align with--one which can help you reduce costs, create synergies, promote growth and increase your business’ value.
2. Consider the “why?”—as in, “Why are you considering purchasing this business?”
Think about how the acquisition aligns with your strategic goals. Perhaps you’re looking to acquire a business similar to your own to stake a claim on that company’s share of the market, or perhaps you have a desire to add new or complimentary products and services to your existing offerings. On a more organic level, maybe it’s because the company has an excellent reputation in the community, and you like to think local. If you’re focused on community, don’t be so quick to rebrand your new acquisition, however, as customers typically prefer doing business with a name they recognize and are comfortable with. From a global perspective, you might want to expand to international markets and purchasing a company that has existing contacts and good relationships established may be a sound way to globalize.
3. Make sure the companies mesh.
Do the companies share like philosophies about business, leadership, communication, business processes and how employees should be treated and rewarded? Addressing these questions and making sure the answer is a resounding “yes” can make for a healthy merger.
4. Plan ahead to deal with redundancy.
In the acquisition world, it’s all about integration, integration, integration. If you’re merging, keep duplicates—whether they’re jobs, systems or other expenses—from becoming a financial killer by retaining the best people for your team, those who can see you through the bumps that come with the territory. Tackle this, and do so quickly after closing the deal to minimize profit losses.
5. Budget for it all.
Expenses to consider: Computer programs may need to be changed out, offices may need new furniture or remodeling and employees may need to be trained.
6. Think about the contract.
You’ll hire attorneys to help you handle the deal, of course, but start considering what you want to put in writing if you purchase the company. For example, set a price on “no-gos.” Sometimes the other party decides to back away from the table before you can finalize the deal—of course, not before you may have spent thousands of dollars in lawyer fees. Get in writing a penalty or fee that can be charged if the sellers have a change of heart. And in today’s high-tech world, you can’t forget to dot all the digital “I’s” and cross your technological “T’s.” Ensure that any deal you ink includes securing the rights to the company’s social media, including passwords, as well as websites and customers’ emails.
7. Be cautious.
Sometimes, despite best efforts, acquisitions don’t work out, which can be devastating for small and mid-size companies. If you’re planning on merging companies, consider running parallel operations to see how things go before you mix the two and any merger is set in stone.
With careful acquisition planning, you can realize your strategic goals and set the stage for successful business growth for years to come.