Analyze the stability of billing, whether it is adequately diversified in a number of customers, whether it is contract-assured billing, whether there are risks of entry from new competitors or new technologies, etc. In short, you need to assess if there is a risk that your revenue will decrease. Check the structure of the organization, find out what each employee does, and if possible, spend a few days working to learn how operations work and the work environment with proper governance training .
Make a budget to understand how much you will need to invest after the acquisition. Ex: new equipment, relocation, dismissals, etc. Make a classification of fixed and variable expenses and understand break even. Analyze company numbers to understand when your return on invested capital or payback will occur.
Understand the company’s niche market. This will allow you to discover options for expanding your customer base. If you pay the purchase payment in installments, understand how the company’s cash can help you with the installments. Acquiring a business requires a lot of care. Do not hurry through the process.
There are numerous advantages to acquiring a ready-made company in this country, the main one being reducing the number of uncertainties.
- Customers already consolidated. You will not need to prospect customers from zero since the customer already exists.
- Existing accounting: This makes the buyer understand whether the company in profit or loss. An accounting audit can help you check the actual business situation.
- Lower risk: Once the initial startup phases like a start-up, marketing, customer prospecting, etc. are over. By acquiring a ready-made business, the entrepreneur is more likely to succeed.
- Known improvement or growth situation: Since the business is up and running, you can look at opportunities for improvement or growth. E.g. new market niches, computerization, new products, improved service, reduced expenses, etc.
Acquiring a readymade business can also have some disadvantages. The main one is in relation to the amount of investment, which can be much larger than the investment to start a business from scratch. This is the price to pay, for the time savings and the lowest risks. The potential existence of tax, labor, and environmental, etc., liabilities should also be considered. Therefore it is necessary to hire external advisors to assist you in Due Diligence.
The steps are usually as follows:
- Market analysis, initial contact and expectations alignment: Understand all market options to choose the company that best suits your preferences and understand the expected value expectation. This value is reasonable.
- Signing a Confidentiality Agreement: The Confidentiality Agreement is a mutual commitment to confidentiality in negotiations and exchange of information.
- Company Valuation: Estimate the price range based on different assumptions, some more pessimistic and some more optimistic.
- Non-binding offer: Present an initial offer, usually for the most pessimistic assumptions.
- Verification or Due Diligence: survey and verify the veracity of all company information.
- Binding proposal: Submit a final proposal, taking into account the outcome of the verification.
- Signing of the sales contract: It is important to be flexible and have lawyers with the appropriate contractual and corporate experience.
Given the complexity of the procurement process, it is very important to have the expert services of a financial advisor and a lawyer.