When making an acquisition there are several factors that buyers must consider to ensure a seamless transaction. Four important considerations are:
- Ownership: Is the owner indispensable to the business? If the business is entirely dependent on the presence of the owner to function properly, it could present challenges with daily operations, employment matters, client retention, etc. Businesses that can operate without the owner and are able to pivot in a new direction will be ideal acquisition targets.
- Cash Flow: Ensure all business units are cash flow positive and have a history of profitability. Review how much the business is worth by conducting a valuation and quality of earnings report. It is also important to understand how much debt the business has, how the margins of the business compare to industry peers, and how long it will take to transition to a new revenue model.
- Brand Identity: Identify how strong the brand of the business is. To determine this, look at their online presence and how they manage their clients and sales process. Buyers should focus on businesses with a recognizable brand and an online presence in good standing.
- Legal Structure: Reviewing corporate formation documents, shareholder interests, entity type, tax structure and any relevant legal history.
These are just four points that should be considered when making an acquisition. As a buyer, it is important to do thorough due diligence and to make sure all facets of the target business are thoroughly analyzed. Oversight or mistakes can be costly, both to the buyer and the seller. Using a vetted advisor to help navigate the process is crucial.
Abour the Author,