News: January 2014

Business strategy

Tips for buying out a competitor

As the economy begins to recover, many businesses are finding themselves in a rather enviable position – large cash reserves in the bank and weaker competitors waiting to be snapped up for a bargain price. So, you know you want to expand by acquiring another firm, but where to start?

Analyse your business

Start with a SWOT analysis. With your management team, write up the Strengths, Weaknesses, Opportunities and Threats of your business. Now identify the gaps – if for example, a weakness is that you have only 3 large clients, you could fill that gap by buying a competitor who has a further 4 large clients. Repeat this process for Opportunities and Threats.

Search for a business

Now that you have your criteria from your gap analysis, make sure you know how to look for a business. Check multiple reliable sources to find the business that is right for you. Talk to your team and establish a list of competitors who are considered to have a good client base, good products or services, a good reputation, etc.

Value the business properly

Your accountant can help you with this but read up and understand the basic financial techniques to value a business; its cash flow and other assets. Know how to prepare a basic business plan and conduct research to understand how the
business is getting its customers and delivers goods/services.

Structure and finance

Your advisors should be able to give you a basic understanding of how the business valuation and related cash flow tie together. Examine a number of ways to put a transaction together to overcome different risks. Your legal team and accountant should provide guidance on the best way to structure and finance the deal to complete the acquisition.

Perform due diligence

Your advisors will help you to tie accounting records into source documents. You need to make sure you are getting what you have agreed to pay for. Consider what impact the acquisition will have on your current business. If, by merging the two firms together you feel that the various teams will get along and the sum of the two parts equate to a stronger, better, business, then you should probably proceed with the acquisition.

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