There’s no denying that making the decision to acquire an existing business is an exciting development; however, it can also be a process fraught with potential risk. Making mistakes during the acquisition process can lead to potentially serious financial losses and other challenges, so it’s vital that you do your homework and strive to avoid making significant errors.
To help you handle the acquisition journey correctly from start to finish, we’ve compiled a round-up of the most common business buying mistakes, so you’ll know just what to avoid!
1. Failing to do your research
If you’re considering acquiring a company that offers different service lines to yours, it’s vitally important that you conduct thorough market research before going ahead. Entering a new market with little or no understanding is a serious mistake that could have potentially catastrophic ramifications down the line.
To avoid this serious error, learn as much as you can about the new industry before acquiring. This includes attending industry events, interviewing industry specialists and spending a lot of time reading all the materials you can possibly find about different aspects of the industry.
Entering a new market can bring significant financial rewards, but you need to have a firm foundation of knowledge to rely upon to make it work.
You will also need to do your homework when it comes to your potential acquisition itself and its standing in the industry. This includes making sure that the business ticks all the right legal and financial boxes and complies with both industry-specific and national regulations.
2. Mishandling the due diligence phase of the acquisition process
Due diligence is an integral part of the acquisition process. Unfortunately, it is also the stage where catastrophic mistakes can be made that severely impact the buyer post-sale.
One of the most common errors made during the due diligence phase is the desire to rush through it as fast as possible.
While it’s understandable that you wish to close the deal as soon as you can, proceeding through due diligence with undue haste can leave you vulnerable to disastrous oversights. These can include missing any holes in the company’s finances or failing to notice outstanding legal issues that need to be sorted.
The takeaway? Slow down, take your time, and make sure you examine your prospective acquisition from all possible angles, including their finances, taxes, contracts, employee agreements, patents, and leases.
3. Paying too much for your new acquisition
Another common mistake is paying more than a business is worth, which is obviously deeply undesirable as it places unnecessary financial strain on your own company.
To avoid making this error, it’s important that a thorough valuation of the business is carried out. This valuation should consider various vital factors, including the company’s financial state, customer base, employees, market position, and emerging trends.
Having a nuanced understanding of a business’s true market value will help to ensure that you pay a fair price that suits both you and the seller.
4. Neglecting vital relationships
Once the deal has been completed, another common error made by acquiring businesses is to neglect to maintain the relationships the acquired business has already forged between its suppliers and customers.
These relationships are vital to the ongoing success of the business post-sale, so failing to communicate effectively with suppliers and clients can result in them looking elsewhere – to your detriment.
Keep the channels of communication open and do what you can to ensure the transition to your ownership is as smooth as can be for everyone involved – not just your new employees but your suppliers and clientele.
Need expert help to buy the right business?
Hopefully, this article has shed some light on some of the serious pitfalls to avoid when buying a business. If you think you need some expert help and guidance to ensure these kinds of mistakes are avoided, however, it may be worth relying on a business broker.
Here at Harris Acquire, we can take the stress of the acquisition process off your shoulders, handling everything from initial contact with sellers to valuation, due diligence and negotiation.
To find out more, give us a ring on 01926 757100 or send an email to Hello@harrisacquire.com.