Business Acquisition 101: What You Need to Know Before Finalizing the Merger

It is exciting to experience growth in your business, but eventually, major growth will lead to change in the company. Established businesses often find it beneficial to acquire another company, which can rapidly expand the products and services that are offered to your customers.

If you want to expand your company, then it is essential that you are open to asset acquisition. But, you need to be cautious in the way that you proceed. Handling the situation incorrectly could result in major problems down the road.

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Advice from the Professionals

When you are moving toward an acquisition, the best thing that you can do is consult with an experienced business accountant. Your accountant will look at the numbers to determine the potential for future growth, helping you to see the possibilities that could be created in the future.

Most business owners don’t have experience or education to know how to handle an acquisition. Attempting a do-it-yourself approach could eventually bring down the company. You need to be sure that you are managing your cash flow and employees, to provide top-notch services to your customers throughout the transition.

How do you know if the acquisition is in line with your goals for the company? Keep reading to learn more about how an acquisition could impact your business.

Do Your Homework

Even if the storefront looks nice, you don’t know a lot about the company until you get a look at their books. It is essential that you have an audit completed. All of the numbers need to be checked and double-checked, to be sure that you aren’t overlooking any potentially harmful financial information.

This research gives you a full picture of what you are getting yourself into from a financial standpoint. Even if you have positive predictions for the future, there might be a lot of work to get to that point. Look at the real numbers right now to understand the debt load, cash flow, income, and burdens that will need to be managed.

Stay grounded in this research process! Too often, business owners get overly excited about the possibilities. As a result, they overlook the harsh realities that will need to be faced when the merger is done. It is good to identify the possibilities, but you also need to be focused on a realistic forecast and how it will impact the financial success of your business.

Not only should you audit the books, but also look at the reputation of the owner and managers. Finding a history of lawsuits or reputation problems could be a red flag that you are stepping into a bad situation. Ask questions about investor or shareholder reputations. Look for details about conflicts or lawsuits that have been recorded.

If you find that the business owner complains about the audit or tries to withhold information, then you might consider walking away from the deal. It is essential that you have full transparency about the situation so that you can determine whether the merger is a smart move.

Is the Company in Alignment with Your Culture and Mission?

There’s always an adjustment period after an acquisition. But, these adjustments can be nearly impossible if you are bringing in employees who are accustomed to a drastically different company culture. If you want to merge the teams, then you need to have a plan in place that will bridge the gap in office culture.

The easiest solution to choose a company that already offers similar services. When things are in alignment from the beginning, then employees won’t need to go through drastic changes after the merger is complete.

In the situation where you are buying a company that offers products that are significantly different from your current offerings, then you need to show your customers how it makes sense. Highlight the opportunities that are available for customers, helping them to see the benefits that they will receive because of the acquisition.

What are the Anticipated Cash Flow and Operating Expenses?

The purchase price is usually the number that is focused on during the negotiations. While the initial price is important, you also need to consider the impact of operating costs after the sale is complete. Regardless of past performance or future projections, you need to be able to cover the daily operating costs for your new venture.

Find out details about monthly expenses, payroll, equipment, and any other overhead costs that will need to be paid. Does the company own, lease, or rent their building? How much is spent for the monthly office costs as well as utilities? What are the anticipated costs of employee benefits, payroll, and training?

All potential scenarios need to be considered so that you can see the impact on your business. Even if you aren’t planning to keep all of the new employees, you need to consider potential upfront costs for severance packages.

Never make the mistake of forming assumptions or guessing on the numbers for operating costs. Instead, it is better to look at a few years’ worth of balance sheets and bank statements. Your business accountant can help you understand the current position of the company and the things that you can expect in the future.

Current Market Conditions

The market can change over the years, which often has a big impact on sales and revenue. Is the economy for your industry increasing or declining right now? If things are slowing down, then you might have more success buying a new venture instead of sticking in the same line of products.

For example, businesses that previously offered landline phone services were left in the dust if they didn’t innovate with the invention of cell phones. As the industry was changing, it would have been a poorly timed move to acquire another landline phone company. But, the businesses which merged with companies that offered newer technology could use the acquisition to support future growth.

Look for acquisitions that can allow your company to offer new services or products, add new accounts in the industry, or give your business a competitive advantage in the industry.

If you are investing in a new company, then it is best if the acquisition brings in new customers and provides the options to expand the list of current customers.

Have a Plan in Place for All Scenarios

Even though the hope is that your merger will boost profitability and future success, there is a possibility that the efforts might fail. If things go wrong, how will you handle the situation? Too often, business owners know how to manage the successes, but they are unsure about how to handle the failures.

You might not be planning to fail with this effort. But, you need to be sure that you have an exit plan in place. Talk to your accountant about all possible scenarios that you might experience. Then, put together a strategy that will help you handle the situation as it plays out.

The advice from an experienced financial professional can help you avoid common mistakes along the way. Maintain open communication with your accountant and business lawyer to ensure a smooth process to close the deal.

Real Value for Your Company

Looking through this information will help you see the real value that is available through the merger. It is essential that you develop solid evidence that your business acquisition will bring new value and revenue for your company. Otherwise, you might be stunting the growth of your company by bringing in another business line that is not sustainable.

If the business you are acquiring is in serious financial trouble, then you might have a hard time pulling the company out of the nosedive. But, there are situations where this situation can be a recipe for success when handled correctly. So, the best scenario is to put together a detailed business plan that can help you overcome potential roadblocks along the way.

The best way that you can support rapid growth for your company is to work with a team of trusted professional accountants. These financial experts can answer your questions and sort through the numbers to identify the best- and worst-case scenarios that you can experience.

Talk to an Experienced Team of Accountants

Here at Easier Accounting, we offer top-notch business accounting services. We can support you through all the changes that you might encounter throughout the year. Our goal is to manage the books and tax paperwork, to keep things simple so that you can focus on the growth of your company.

By working with an accountant professional, you set yourself up for success. We have many years of experience helping small business owners with growth, acquisition, and development. Our financial services can be a powerful way to help you maintain full transparency so that you can make the right decisions for the future of your business.

Are you ready to learn more about our high-quality business accounting and bookkeeping services? Then we invite you to contact us to have a conversation about how our team can help your company: (888) 620-0770