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Business Acquisition: Critical Issues to Consider and some Helpful Tips

Planning to acquire an existing business? Listed below are some of the critical issues that you have to consider:

Different business approach – If you apply the same approach in running the existing business you’ve acquired, you’ll most probably get the same results as what it was already reaping before. Since it is deemed to be already less risky because it already has an established customer base and a track record, it’s good to put your efforts in improving the business and make it perform better.

Customers – This is one of the most valuable assets that are included in the acquisition of an existing business. For some, even though they’ve been offering quality product and services, reaping profits might take time. But the task that you have to do for a business with an established client base is to make sure that they remain satisfied with what you are offering so they’ll remain loyal to your brand.

Employees – Assess how vital are the existing employees do the business have. How do they manage the day-to-day operational tasks? Is there someone that will be hard to replace? Were they able to build a strong connection with the customers? Know who the key people are and how to keep them. The need to provide incentives or bonuses might arise so as to maintain their productivity and loyalty to the business once the business has been turned over.

Facilities – Leases are not always reflected on the financial statements of an existing business, but they can be considered as a big liability. Know if the current owner guaranteed the lease and make sure if the landlord/s will also let you personally guarantee it as well.

There might be some regulations to abide by. If the business is Ontario-based, there might be local environmental laws that should be taken into consideration and be observed.

Financial records – Don’t look at the historical statements with the face value and don’t confuse a review with an audit. An audit is the one that only requires  verification from a CPA. If the seller presents you with projected numbers, don’t base on them.

Inventory – the value of the inventory is most likely going to be less than the paid value, since the ones that are left in the storage are deemed to be the slow-moving items.  Owners of small business might be hesitant to even include these in the sale because of their near-obsolete status.

Competitors – Are the competitors of your acquired business aggressive? Are they willing to slash big margins? Was the seller able to provide you with information about foreseen competitors that might affect your business?

Valuation – Make an estimate of the net cash flow then deduct the salary of the employees, you’ll somehow get a picture of how much the business costs. The valuation must also reflect the amount of risk and even the potential of the business to expand further. Different methods can be used to come up with the valuation of the business and a lot of time must be spent to arrive at a reasonable rate.

To get more ideas about buying and selling businesses, you may read more articles posted in Business for Ontario.

Some tips:

Tap a business broker – they have an in-depth knowledge when it comes to these kinds of transactions. They will be a big help when it comes to negotiating a deal and setting a value estimate of the business.

Get feedback from the customers – If you’re eyeing an Ontario-based business, go the area and talk to some of the people to gather feedback and insights about the company.

Regularly engage in conversations with the owner – This will help you get more details and a tigher grasp of the business.

Talk to the employees, as well – These people know a lot about the operations and the culture of the company itself. By getting information from them, they will help you adapt and form relationships within the company.

Do your research and assessment – To know if you’ll be getting what you are planning to pay for, conduct a comprehensive study of the business that you are eyeing. Ask for details from the seller and try to probe for more answers that are not found on the provided documents by the seller.


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