Business Acquisition: Your Essential Checklist

Business Acquisition: Your Essential Checklist

by

Liz Cromwell

There are many advantages to acquiring an existing business; not least the potential to save a lot of time and effort. Many view it as a short-cut into business, as someone else has already done the hard work of launching a new enterprise, but it is important when considering business acquisition not to fall into the trap of seeing it as an easy option.

1.Ask the professionals.

Even before deciding on a possible business to purchase it is essential to find an appropriate accountant to advise you of the various issues involved, some accountants specialise in business acquisition and will have a wealth of experience to offer. If you are looking to buy a business to expand your existing operations, it is essential that you discuss things with your own accountant as they ve have a good take on things.

2.The costly option?

The biggest disadvantage of buying an existing company will be cost; you are of course buying the work spent establishing the firm along with the concept, customer base, brand and goodwill associated with the name. It is often the stress and effort spent by the business s original founders that causes them to be over-optimistic about the market value of their business. Take professional advice to check that you are paying a fair price, as sentiment should not come into the calculation of value.

3.What price good will?

If your budget does stretch to the greater initial outlay involved, it is important to consider the flip-side of a business having a trading history: for instance, if the business does have a loyal customer base they may associate any goodwill with the previous owners and leave when you take over. An established brand is fine, but what sort of reputation does it have? A negative image associated with a particular name could end-up costing more time to fix than starting a completely new venture.

4.The value of cynicism.

It is probably a good idea to ask why a business is for sale: hidden debts or underlying problems may have given the owners a need to offload and this will not necessarily be reflected in the cost as sentimentality creeps in even for owners of failing businesses.

5.Worth further investigation.

Check any profit trends and projections to confirm that the business is moving in the right direction; there should be forecasts available. Look at the operations of the business, including sales, costs and assets. Get an accountant to perform due diligence to thoroughly vet the financial health of your potential purchase.

6.Baggage included.

Unlike a brand new venture, which can grow from your own vision, a going concern already has many people s lives caught up in it; even setting the original founders aside, and ignoring the faithful customers, you will often still have others, not least any existing staff to whom you bare not only a moral responsibility, but also a statutory obligation with regard to their employment. Check out all laws and regulations such as TUPE before making any decisions.

So, far from the short-cut many imagine it to be, business acquisition is not for the faint hearted. It requires a very particular type of businessperson to make it work, because although there is often less personal stress involved in buying an established business, there is also less flexibly and so it is important to be very honest with yourself about whether you are happy to adapt and work within someone else s existing framework.

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