1. BUSINESS VALUE
When considering whether or not to buy out a business, the most important thing to do is to find out what the business is worth, to determine if a potential purchase or addition will be worthwhile to pursue. Many business owners, brokers, accountants will have rough rules of thumb to valuation as a first test but it is imperative to outsource a proper business valuation to an independent business valuation firm. This is because a good business valuation professional will conduct an in-depth review of the company’s performance and develop a good understanding of the risk factors associated with that performance and provide an unbiased view of what they find that the business is truly worth.
While the business valuation is outsourced, there are 3 other areas that should also be consider during the due diligence process, besides just the pure value.
2. EMPLOYEES - both yours and theirs
Current employees – these are the people that work for you right now. Ensure that they will stick around, and are prepared to take on the task of the acquisition by including your key personnel in the decision making process.
Target company’s employees – you will have to decide which of the employees of the target company you want to keep or if they are going to be lay offs. What synergies may exist to integrate the target business into your current operation?
3. COMPANY CULTURE
This is referring to the culture of the target business and considers how it may fit or disrupt your current culture. It will be up to your organization and your leader to ensure that the culture stays the same and the acquired employees integrate.
4. CORPORATE STRUCTURE
How will the hierarchy of your business change, if senior management or the previous owner is part of the acquisition? Will your current leadership team be able to adapt to such structural changes? It is usually best to promote from within your existing company rather than from the acquired company.
Should the target business pass the established business valuation criteria, there are a lot of disruptions and changes associated with a buy out. While it is definitely a good idea to discuss the acquisition with your current team, adequate preparation is key. The decisions you make and how the transition is handled will determine if the acquisition is a success or failure.
Malahat Valuation Group is a professional business valuation firm that helps both buyers and sellers determine the value of the business. The initial consultation is always free!
Malahat Valuation Group