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In this Week’s Training Video, we discuss how to use an acquisition strategy for growing a small business. When buying a business, you may think that it’s about purchasing an established organization or avoiding start-up costs. But when buying an existing business, you’re buying customers.
So, buying a complimentary business or acquiring a competitor are great vehicles for growth. The two most common forms are:
Mergers – Merging with the organization to create a new business
Acquisitions – Acquire the business and their clients. Most business owners choose acquisitions so that they’re able to retain control of all decisions.
So how do you find the ideal business? You will need to assess that your target is a right fit for you. A good target is a business that sells complementary or competing products/services and isn’t doing well for one reason or another. A bad target will sell complementary or competing products/services and is performing well.
Here are some ways of finding businesses on the market:
- Word of mouth
- Commercial investment magazines
- Trade Publications
Once you have found your ideal target business, you will want to setup up acquisition team to help you through the acquisition/merger process. Make sure that you and your team have a clear scope of work agreements, and understand the fee structure. Your team should include an accountant and lawyer, check out the video to hear about their responsibilities.
After finding your ideal target business and approaching them you’ll need to begin the process of due diligence and valuation. With the assistance of your acquisition team, you and the seller will need to determine the value of the business and arrive at a price. Do your due diligence and do a comprehensive evaluation of the business you are looking to acquire before buying. This will ensure that the information you receive from the seller is honest and accurate.
Once you have completed a thorough due diligence and valuation. The next step is negotiations. You and the seller may have agreed on a price, but there may be other issues to discuss before signing the contract. Choices involved in this type of transaction will be dependent on your specific business, and your goals for its growth.