“Now is a perfect time to shop for an acquisition target,” says Blanchette, who advises companies in Winnipeg. “Many entrepreneurs are reaching retirement age and putting their businesses up for sale. But if you are going to spend all that money, you’d better make an informed decision.”
She suggests four essential questions entrepreneurs need to answer when considering a purchase.
Does it make sense?
Don’t buy a business just because you can. You need a clear vision of where you want your company to be in future years and how an acquisition will help you get there. Will an acquisition increase your market share? Differentiate you from the competition? Diversify your revenue streams?
Tip: Avoid impulse buying. Your accountant, business adviser and banker can all help you decide whether an acquisition is the best route for your business, given your overall strategic plan.
Is your business ready?
Entrepreneurs often think exclusively in terms of what they can afford. “You also need to ask yourself whether you are able to integrate the new company into your existing business,” Blanchette says. “Are you properly structured to absorb that kind of sudden growth?”
Acquisitions can be disruptive. They bring an influx of new clients, employees, infrastructure and organizational changes. Blanchette recommends entrepreneurs do a SWOT analysis (S—Strengths, W—Weaknesses, O—Opportunities, T—Threats) on their company’s current situation and then consider how that will change after an acquisition.
Tip: Technology can help you work smarter. Formal, system-based workflows will make your life easier when the time comes to integrate a new business.
What will the impact be on your business?
Acquiring a company creates financial obligations and operational changes that can drain your cash-flow in the short run. If those changes aren’t properly handled, they can cause your company to spin out of control.
That’s why it’s important—once you have a shortlist of potential acquisition targets—to simulate how different scenarios will impact your company.
Tip: Proper planning helps you evaluate the impact of an acquisition on your working capital and allow you to properly structure your balance sheet.
Do you know what you're buying?
Shopping for a company is like shopping for anything else: Buyer beware. You want the best value, the best fit and the best price. Ask yourself why a company is for sale and what lasting value it offers, starting with the profits it’s generating. “Financial records may not always reflect reality. Many entrepreneurs later realize that they overpaid for the company they bought,” Blanchette says.
Tip: Do your homework on the business you’re buying. Find out as much as you can about the company and its employees as well as the industry or region they operate in (if they are different from your own).