Are you considering acquiring another company in your industry? Mergers & acquisitions are an excellent way to provide more value to your market and increase your net worth at the same time.
There are countless opportunities to acquire a business, but knowing which ones are more profitable can be a challenge because you can’t go based on numbers alone. You won’t know everything about a deal until you take a closer look, so consider the following factors before jumping into a deal.
You need to be interested in the business.
Are you interested in or passionate about the business you’re considering acquiring? Even if you don’t perform day-to-day duties, you’ll need at least a basic interest in the company. Having a deep passion is even better. Even if all you have is a passion for being successful, that can be enough because you’ll do what it takes to succeed.
At the end of the day, passion will drive your profits because if you don’t enjoy what you’re involved in, you’re likely to procrastinate and make less-than-ideal decisions. You might also skip over details that matter.
For example, if you acquire a retail business, you might not care how your gondolas are arranged. However, if you’re passionate about retail, you’ll either already know (or you’ll learn) that successful companies hire a team to construct specific layouts for shelves and pegs, and create diagrams with visuals and measurements for a perfect setup. Ignoring the importance of this step will make a massive difference in your profits.
Interest also helps you take care of your team and customers. You’ll go the extra mile to make sure your staff and customers are well taken care of, and you’ll have the energy and drive to get through tough times.
Work with a broker on the important details.
An M&A broker will help you evaluate the following:
Is the asking price reasonable?
The answer will vary based on industry, so if you aren’t seasoned in acquisitions, your broker will help you make this determination.
Is the debt load decent?
If the company has a reasonable debt with a high interest rate, it’s not necessarily bad if it can be refinanced easily. However, high liabilities are a red flag.
Is the company free from litigation?
It’s normal for companies to get sued once in a while. It’s not normal for them to have constant pending litigation. A good example of this is Walmart. Not only do they get sued regularly by consumers, but they’ve also been sued by the FTC.
Are their books clean?
It’s easier to assess a business’ profitability when its financial statements are well organized. You don’t want to have any surprises down the road once you’ve already acquired the business. If the business’ financial statements are a mess, incomplete, or missing, that’s a bad sign.
Are they in good standing with the IRS?
It’s not always a bad thing if the business is behind on paying income taxes and filing returns, provided this information is given to you transparently. Only you can assess whether it’s worth acquiring a business that will carry tax debt for a short or long period of time.
Are their customers happy?
Customer satisfaction is everything in business. If the people you serve aren’t happy, they’re not going to spend money with your company.
When you consider acquiring another business, it’s critical to look at how their customers feel about the brand and how the company interacts with them. Are they treated well on social media, or do they get ignored and dismissed when they bring up an issue? Are there as many positive reviews as there are negative?
It’s not impossible to win over unhappy customers. After all, during an acquisition, customers will know someone else is taking over the business, and they will be hopeful that you’ll make some important changes.
If you acquire the company, be ready and willing to listen to customer feedback and implement fast changes. It’s a great way to make a strong first impression in your market and rebuild any negative aspects of the company’s reputation.
Will the acquisition increase value?
You’ll only accelerate business growth through an acquisition if it adds value to your company. It can be as simple as wanting to acquire the customer base of another brand because they spend more than other segments of the market.
There are many ways an acquired business can add value, aside from just increasing sales and cash flow. Take your time deciding. The most profitable acquisition for you will be one that meets your unique criteria.
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This content is made possible by Larry Alton.
Photo by krakenimages on Unsplash
