If you are keen to expand into new corporate horizons, or simply fortify your current market position, then buying an existing business could be the ideal solution. Not only will you avoid the complex and lengthy process of setting up a new company, but you will benefit from immediate access to your new acquisition’s assets, brand reputation, and talent.
Of course, there is a lot more to buying a business than simply signing on the dotted line. Making a purchase of this magnitude brings with it a unique and complex set of advantages and disadvantages, and it’s vitally important that you do your homework before you start considering which established business you’d like to buy.
It goes without saying that the acquisition process can be complex, and contains a certain amount of risk, so it is crucial that you familiarise yourself with the nuances of the journey to make it as smooth and straightforward as possible. It’s also important to find a where our friendly and expert team at Harris Acquire is happy to step in.
First things first, however, don’t hesitate to explore our comprehensive guide on how to buy a business, which includes:
- Pros and cons
- What you should look for in a potential acquisition
- The importance of due diligence
- Financing
- Managing the integration process
With no further ado, let’s begin
The pros and cons of acquiring a business
As with most major decisions, there are some significant upsides and downsides to consider when it comes to purchasing an existing business.
The Pros
- The business is already established, which frees you of the complicated and sometimes length process of getting a new firm off the ground.
- Acquiring an existing business grants you easy access to new markets.
- The business you will be acquiring will already have an experienced and skilled workforce in place.
- The business will most likely have already established a firm foothold in the market and a positive reputation.
- There will be an existing client base to draw on right away.
- Any additional financing required should be easier to obtain as the business will already have a proven financial record.
The Cons
- Depending on the size and previous success of the business, an acquisition can be very expensive.
- Acquiring a business can be a significant risk, due to several factors, ranging from an unforeseen dip in the market to unresolved legal issues or even debts.
- Taking over an established business can cause difficulties when it comes to consolidating company cultures and this can lead to employees becoming disgruntled.
What you should look for in a potential acquisition
Once you have weighed up the advantages and disadvantages of an acquisition and made the decision to proceed, the next step is to think about the type of business you want to buy. There are several key questions to ask yourself as you explore the different companies that you are interested in.
These questions include:
- How much capital can you invest?
- What are your profit expectations?
- Which business opportunity will be the best synergistic match for your own skills and experience?
- Do you have enough knowledge of the market you’re considering entering with this acquisition?
- What are the biggest risks of acquiring a particular business?
- What is the proposed acquisition’s value?
Answering these questions will give you a better chance of finding the right kinds of businesses to suit your unique requirements.
Once you have a few acquisition prospects you will also need to reach out to the owners to see if they would be interested in selling. This entire process can be conducted with the help of an experienced business broker like Harris Acquire, which saves you considerable time and effort and makes each step of the journey as smooth as possible.
If a business is responsive to your proposed acquisition, it’s important to conduct a stringent evaluation to make sure they represent a worthwhile investment opportunity. This will include checking over their financial records, examining any operational information they can provide, and weighing up their market competition.
If you are happy with the results of this evaluation, then you can proceed to the next step, which is negotiation and the creation of a ‘head of terms’ agreement. It’s recommended that you include an exclusivity clause in your negotiations because if you don’t, your acquisition prospect is free to discuss selling their business to other interested buyers. You will most likely have to pay a down payment to the seller to obtain this clause.
The importance of due diligence
Arguably one of the most vital elements of the acquisition process is the due diligence that should be carried out once you have agreed on the main terms of your acquisition. Failure to do so could result in you acquiring a business with hidden legal or financial pitfalls that then become a major headache following your purchase.
There are three main kinds of due diligence, and each requires its own specialist advisors to ensure no stone is left unturned.
- Commercial due diligence: this involves establishing your potential acquisition’s market prominence and familiarising yourself with their competition. Further, commercial due diligence also involves evaluating the unique regulatory landscape of their market.
- Legal due diligence: as the name suggests, this involves making sure that all legal boxes have been ticked; for instance, ascertaining that the company you wish to buy has full ownership of its assets and no outstanding litigation or regulatory issues.
- Financial due diligence: hidden financial problems can be a costly oversight, so it’s vital to carry out financial due diligence and make sure all the numbers they have provided add up and there are no hidden debts lurking in the background.
Due diligence may be time-consuming but it’s vitally important to ensure you have a clear picture of the business you’d like to acquire.
Financing the business buying process
Once you have reached an initial agreement and your due diligence has been carried out, it’s time to sort out your financing so you can go ahead with the purchase!
How you go about this will depend on the method you’re planning to use to finance the acquisition and the organisational structure of your company. You may need to get approval from your Board of Directors first, or you may simply need to contact your bank and provide them with all the information available from your due diligence period.
Your bank or lender will probably want to know:
- Sales particulars of the acquisition prospect
- Your own assets/liabilities
- Business accounts dating back three years
- Financial projections
Making integration as hassle-free as can be
Once you’ve secured your funding and the deal has been formally completed, it’s time to focus on managing the integration process. Specifically, this involves making sure all employees are well looked-after.
There are regulations governing this process that you must be sure to follow – for example, employees from your newly employed business must be able to continue under the same terms and conditions.
Communication is key at every stage of the integration process, to make blending your company cultures as seamless as possible. If you do decide that you need to reorganise the workforce or even make some redundancies, this must be done with tact and care. It’s also vitally important that you consult a solicitor to ensure everything is done by the book, especially if you need to reduce staff numbers.
If the integration is handled with diplomacy, tact, and compassion for your new team members, you will find yourself on the best possible footing going forward
Need assistance with your acquisition?
As you can see, the process of buying an existing business can be rather complicated, with lots of vital points to weigh up along the way.
If you are new to acquisitions or find the whole process a little intimidating, the good news is that hiring an experienced and reputable business broker can make a huge difference and take a weight off your shoulders.
Here at Harris Acquire, we specialise in making M&A as stress-free as possible, assisting you with every key stage of the process – from planning and preparation to negotiation, due diligence, and, of course, closing.
So, what are you waiting for? If you’re keen to get the best possible deal and begin expanding your market reach, don’t hesitate to contact us at 01926 757100 or send an email to Hello@harrisacquire.com. We look forward to helping you with your next acquisition!