5 questions to ask before you acquire a business

If you’ve decided to accelerate your business by acquisition there are a number of considerations you need to make before you can commit to this method of growth. In addition to ascertaining whether your business is in the right shape to take on an acquisition, you’ll need to prepare for the process of negotiation and integration.

Here are five questions you should ask before you acquire.

1. IS ACQUISITION RIGHT FOR MY BUSINESS?

Do some research to find out whether your business is actually suited to growing by acquisition: it needs to be the right thing to do at the right time. Perhaps you have good organic growth and should focus your efforts in maximising that before turning to acquisition, or perhaps your business is not suited to the acquisition process at all.

2. IS MY BUSINESS READY TO ACQUIRE ANOTHER?

The attributes you need to look at to find out whether your business is ready to acquire combines your financial readiness and your business readiness.

One good measure to determine if your business is financially ready to acquire another is if you can readily raise capital from your bank. Big banks are conservative and if they will lend to you on a ‘cash flow’ basis, then it’s a good sign you’re financially ready; if they refuse, then you need to question if you are really ready. Other forms of debt can be expensive and using equity is even more expensive, and sometimes those funds are better invested elsewhere for lower risk gains.

As the leader of the business, you need to ask whether you’re ready to lead your company, the new company and the integration process between the two of them. If your business does not seem culturally ready to integrate with another, reconsider the timing of the acquisition and be extremely careful about the selection process.

3. WHAT SELECTION CRITERIA SHOULD I USE?

Once you have decided your business is ready to acquire, develop a set of a selection criteria based on why you want to use acquisition to grow. The reasons may range from swallowing competition, to growing your client base or product range, which means the business may be very similar to yours or different because you want to diversify.

For us, a good acquisition target is one that:

•Will bring us profitability

•Has a core business that corresponds with ours

•Has a mid-market client base like we do

•Will give us access to a client base, product set or geography we don’t currently have or would like to expand.

Be very strict about your selection criteria and don’t let anything distract you from seeing whether the business is a good target. We once bought a distressed asset because it seemed like a bargain at the time but it turned out that we couldn’t salvage the parts of the business we thought were valuable. The lesson we learnt was if it sounds too good to be true, it probably is.

4. HOW SHOULD I NEGOTIATE?

If you’ve been strict about your selection criteria, you’ll already know what kind of benefit the acquisition will bring. Go into negotiations having done your research about how much it will cost, not just in money but the time and effort to integrate the business before you’ll see return, and possible productivity loss from your current business during transition.

Put yourself in their shoes, but don’t overpay—things are worth what they are worth and nothing more. Remember there are two processes: what something is worth and what you are paying. By the same token, you get what you pay for—if it’s cheap then there is a reason for that.

5. HOW DO I INTEGRATE THE BUSINESSES?

Many acquisitions fail because the integration doesn’t happen swiftly enough or the cultural clash between the two is too great. Be brave, do it quickly but be sensitive to the people involved because without the people you will generally have purchased nothing. When staff leave, clients are only one step behind.

Our acquisitions haven’t been big enough to hire a dedicated change manager for the integration process, but we do arm our line managers with some coaching and training so they can handle the change as it happens.

We’ve also made mistakes. We acquired a business that was not core, and the staff had a hard time transitioning because the acquired business rewarded different types of performance to ours. Don’t stray too far from your core competency so there’s at least a chance the cultures can integrate smoothly.

The acquisition process will be different for each individual business but the lead-up is the same. These five questions will help you prepare.

All the best.

How to Start a Small Business in Just One Day

It’s easy to get overwhelmed by everything that goes into starting a small  business: Writing the business plan, lining up financing,developing a marketing plan, thinking about branding, building a website… attempting to think of and plan for everything may ensure you never get started. No business is built overnight — but your business can easily be established in a day.

If you’ve been dreaming about starting a business for a long time but haven’t been able to pull the trigger, you probably fall into one of two camps:

1. You’re still waiting for the perfect idea, or
2. You’re intimidated by the apparent complexity of starting a business

Either way, no problem.

Are you stalling because you’re waiting for an idea? If so:

• Stop thinking you can’t start until you have a great idea. For every great idea that launches a company, hundreds of thousands of businesses succeed by outworking, out-executing, and out-lasting existing businesses.  Most successful businesses take an idea or model that already exists and with time and effort learn to do it a better.
• Stop worrying about making millions of dollars or developing exit strategies. Too many people don’t start until they think they can see the finish line. No one can predict the finish line.

Think of it this way: You already know, at least in general terms, what you’d like to do. If you do what you enjoy, you may not succeed but you can’t lose.

Are you stalling because you’re unsure and even a little intimidated by the process of starting a business? The key is to get off square one and in motion. Follow these steps; they’re easy, and can all be accomplished in one day:

1. Choose a name. Forget branding and unique selling propositions and all the business identity stuff.  There is no perfect name. For now, don’t worry about finding the perfect URL or website design or promotional literature. You’re putting those carts way before the horse. Just pick a name. Your business can operate under a different name than your company name. Plus, you can always change the name later.
2. Get an EIN (Employee Identification Number). An EIN is the federal tax number used to identify your business. You don’t need an EIN unless you will have employees, plan to form a partnership, LLC, or Corporation. Even so, get one: It’s free, takes minutes, and you can keep your Social Security number private and reduce the chance of identity theft.  (If you don’t have an EIN, your SSN identifies your business for tax purposes.) Apply for an EIN on the IRS website.
3. Register your trade name. If you won’t operate under your own name, your locality may require you to register a trade name. Easy: Fill out the form, file at the courthouse, and in most cases receive your approved registration form on the spot.
4. Get a business license. Your county or city will require a business license, again using a form that takes minutes to fill out. Bring your EIN and your approved trade name registration form. Note: You’ll probably be asked to estimate annual gross receipts. Do your best to estimate accurately, but don’t fret: It’s only an estimate.
5. Fill out a business personal property tax form (if necessary). Businesses are taxed on “personal” property just like individuals. Where I live, no form is required for the year you establish your business. If completing a form is necessary, and you plan to work from home using computers, tools, etc., that you already own, you won’t need to list those items. If you purchase tangible personal property during your first year, you’ll identify those items when you file your business personal property tax form next year.
6. Ask your locality about other permits. Every locality is different. In my area, for example, a “home occupation permit” is required to verify that a home-based business meets zoning requirements. Your locality may require other permits. Ask; they’ll tell you.
7. Get a certificate of resale (if necessary). Also known as seller’s permits, if you plan to sell goods instead of services, a a certificate of resale allows you to collect state sales tax. Yourstate department of taxation website provides complete details, forms, etc. Some entrepreneurs decide to skip this step; don’t.
8. Get a business bank account. Probably the easiest way to mess up your books or run afoul of the IRS is to commingle personal and business funds (and transactions.) Get an account using your business name and EIN, and use that account for all business-related deposits, withdrawals, and transactions.
9. Set up a simple accounting spreadsheet. You can set up business accounting software like QuickBooks later. For now, just create a spreadsheet where you can enter money you spend and money you receive. Bookkeeping is simple, at least at first.  As long as you record everything you do now, creating a more formal system later will be fairly easy.

Sound like a lot? It’s not. Where I live this list can be accomplished in a few hours, including driving time and chatting with the staff at the courthouse. Even if completing the list does take all day, when you’re done all the “complexity” is behind you.

And you’ll be an entrepreneur. You’ll have the documents to prove it.

Regards,

Jeff Haden