So you want to grow your business fast! Well there is no faster way to grow your business than to purchase another existing business. You have to be careful though, because experts like Mark J. Leder caution that acquiring an existing business is rarely straight forward and often filled with risk. Here are steps to make sure you are making the right decision.
1. Do a long due diligence
Your due diligence process should be deep and detailed. It begins before the target firm’s management knows you might want to acquire them. Go through everything publicly available: web pages, job listings, news stories, blog entries, company filings and so forth. If all is as you had hoped, contact management and gauge their interest. Plan a meeting to discuss your thoughts and include a walk-through of their company. You want to see what is really going on. Make sure to visit when they are at full operations so you can also see how the employees do their jobs.
2. Make a Fair Offer
If everything is as you had hoped, be prepared to make an offer to purchase the business. Keep in mind, the initial approach will set the tone for the negotiations. So make sure you are professional and firm.
You will be expected to make the offer, so make sure you have done your homework about what a fair offer for the company would look like. Expect to get a counter offer, so make sure you leave room to negotiate. But do not make too low an offer or you may be considered not serious by the sellers.
3. Contract Time – Use Lawyers
Make sure to get your lawyer involved early and that he is following all of the proceedings and even documenting all of the conversations and verbal offers being made. Review the back and forth with your attorney and with the seller to make sure you are all in agreement, about the understanding between the parties.
In the end however, the decision needs to be made by you with the advice of your lawyer, not the other way around. So never get too far from the contract negotiations or you may find yourself losing a deal you thought was done.
Key Point – Make sure you have the right reasons for buying the business
There are two reasons buying a company makes sense:
- Increase share in your existing market or expand into a new one. Do the new company’s products complement yours or are you buying to increase sales of same types of products and in essence want to eliminate competition? Buying out a competitor or a company with products in a new market may be easier or less expensive than building.
- Secure critical Employees or technology. Buying a company may be the quickest and surest way to get proven technology or staff that can deliver sales and market share. This is true especially if you are in a very competitive industry or market. Good luck!