Acquiring an existing business is a tough decision many entrepreneurs are faced with. In some cases however, it is easier to buy off an existing venture than to build from scratch. Whether you are a veteran entrepreneur or a new business owner, there are factors to consider before acquiring a venture.
The Takeover Rationale: The first step is to carefully examine the rationale behind acquiring the venture. Consider if you are better off acquiring an existing entity in the long-run, rather than creating your start-up. Factors such as size, location, assets and so on, will play a key role in your decision to buy an existing venture. Ensure that the business is one that you have adequate knowledge and exposure to, before taking over its operations.
The Financial Records: Next step is to carefully evaluate all bank statements and financial records of the venture you are planning to acquire. Read up on the history of the company and who the past and current shareholders are. It is critical to know the current financial status of a company before deciding to invest in it, as it may also shed some light on why the company is up for sale. Information such as the market share, number of active and dormant customers, assets and liabilities of the business will also help you take a measured decision.
Viability: Besides conducting due diligence on a company, assessing its viability is even more significant before acquisition. Critically examine the business from its sales record, to consumer behaviour towards the products or services that the business offers. This will help you determine if the business has a sustainable market in the long-term.
Profitability: It is important to understand the trends and growth potential of the venture. Factors such as total cost, break even point, sales and future financial projections will give you an idea of its profitability. The ROI rate is also a significant determinant of profitability.
After gathering all necessary information about the business, it is advisable to run it by trusted financial and legal advisers, to get unbiased third-party recommendations before making your final decision.