How to Acquire a Company

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There are important considerations on how to acquire a company and tips on buying a business that will allow buyers to determine the financial risk and viability of a company they are planning to purchase.

The advantage of acquiring a business rather than starting from scratch is that entrepreneurs will have a customer base and an established cash flow.

In addition, their employees are already knowledgeable and well-trained on the business operation that it is possible to avoid the hiring and training process.

But still, it is important for anyone to know the process on how to acquire a company with less financial risk and legal trouble. And to do this, buyers should consider the following entries before they decide to acquire a company:

A business should be the buyer’s interest and skills

Many successful entrepreneurs believe that a person will likely to increase his success if he engages to a business that meets his skills, experience, and most importantly, his interest.

Consider the geographical area of the business

The location of a business is one of the most important factors which must be considered when buying a company. Ideally, this should be easily accessible not just to the would-be owners but also to the employees.

Ask why the company owner has decided to sell his business

By asking this basic question, buyers would be able to know the financial viability of a company. For example, a company that is being sold because it is no longer making a substantial profit may already be a sign that future owners should exert extra effort to make the business generate more money.

Talk to existing suppliers, customers, and vendors

By talking with these people, buyers would be able to know the company’s strength, weakness, reputation, and business relationships. Meanwhile, it would also be advisable to contact the credit and licensing agencies to make sure that there is not a single complaint against the company.

Review the numbers

To know the financial viability of a business, buyers should ask the owners to give them the cash flow statements, income statements, balance sheets, and tax returns for the past three years of the company’s operation.

Brokers can be extremely helpful

To reduce the financial risk associated in acquiring an existing company, buyers can contact brokers who will help them negotiate deals with sellers. Usually, these professionals will charge a commission between 5 and 10 percent of the purchase price

Hiring an acquisition team reduces the risk

It is ideal to have an “acquisition team” which includes a banker, lawyer, and accountant who will help buyers to review the legal ramifications and financial viability and risks associated to a certain business.

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