Tips for acquiring a pre-existing business
Though buying a business may cost more than starting one, "it's easier to get financing to buy an existing business than to start a new one," reports Entrepreneur. This is because lenders tend to have more confidence in the profitability of pre-existing companies that are already generating revenue.
While banks and investors see acquisitions as safer bets than startups, there are still plenty of considerations that will crop up along the way. Entrepreneur offers the following tips for ensuring you acquire the right business.
Choose a business in an industry you know something about.
This will greatly increase the probability of your acquisition's success in the future, and will impress potential investors. The less you have to learn up front, the better.
Assemble an acquisition team.
This team should be comprised of your investment banker, accountant and attorney, Entrepreneur recommends. This is essential to conducting the due diligence phase of the acquisition process, in which the bulk of the potential buyer's detailed research is completed. The business' bookkeeping in particular is under examination at this stage. "To get an idea of the company's anticipated returns and future financial needs, ask the business owner and/or accountants to show you projected financial statements."
They call it "due diligence" for a reason—acquiring a business is a big decision, and there are a lot of details to dig up. Entrepreneur recommends assessing the company's inventory, sales records and rate of merchandise returns. Additionally, finding out if the company you are looking to acquire has any outstanding debt is vital.
Get an inside look at the current owner's marketing tactics and how much funding he or she allocates to advertising. Sizing up the business' current reputation is also essential, as it can determine future branding strategies.
In addition to following the guidelines above, contacting an M&A advisor can help guide you through complex process of buying a pre-existing business.