Acquiring an existing business is a great move for entrepreneurs, but it’s not an alternative to skip the hard beginnings of creating a business. It comes with its own set of adjustments that can be equally as challenging as building a completely new business. So before you take over a business, here are the key questions you need to ask.
Do they have their accounting in order?
Don’t ever try to make a decision without first asking for the business’ financial statements. There are three main ones that you should ask for: income statement, which could also be called profit and loss statements, balance sheet, and cash flow statement.
The income statement shows the earnings and expenses of a company. The balance sheet shows the company’s assets and liabilities, or what it owns and what it owes for a certain period of time. The cash flow statement details where the money is coming and going.
These three will inform you if the company is profitable, if it’s stable enough financially to be worth acquiring.
What’s the financial status?
While it’s important to get an idea of a company’s financial statements, they can only tell you about a certain period of time. It could tell you that the business was booming 6 months ago, but you might overlook the situation at present.
You need to know everything, especially if the company has a big debt that has yet to be paid. If it wouldn’t drive you away from deciding to acquire the business, it might change the arrangement drastically, but this has to be discussed early on. You need to know the full extent of what you’re getting into.
What’s the standard work and operation procedure?
What systems or routines are in place in terms of lead acquisition, conversions, margins, etc? Knowing the industry or field that the business belongs in makes the process easier because you probably have an extensive idea of how the business processes go. Even then, the owner might have done things differently. Make it a point to really understand his own systems.
In addition, know the history of what has worked and what hasn’t. Try to learn everything they’ve tried before, especially in the aspect of marketing and customer service or relationship. These are key aspects that can make or break the business more so than others.
What’s the customer or client relationship like?
An alternate question could be, what type of business is it? Do customers buy products from the business (product-based) or do clients work with the company for an end-product (service-based)?
What’s the importance of this, you ask? Major. This becomes an issue when a new owner comes into the picture and the whole dynamic changes between the company and customer or client because the relationship is “disturbed”. You need to pay extra attention to this, sometimes even hire account managers to handle client relationships.
Are there existing key business connections?
This is not necessarily about the owner’s own business connections or network, but people or companies he’s worked with that directly involves the company to be acquired. This could mean suppliers as well as other business owners that the company is currently doing business with.
Regardless if you want to keep these connections or not, this comes of great importance because if you keep them, you’ll have to communicate with them regularly. If not, you’ll have to arrange the setup so no one gets left hanging.
Other tips about acquiring a new business
Those are some questions worth asking when acquiring a business, but there are also things that you have to know or do that you’re not going to get by asking a question to the owner. Here are 3 other tips that I know will help anyone just getting into a new business.
Spend some time working directly on the business
Every week, work in a different department of the business. Or, if it’s a small business, work on different areas of the business process. There are lots of areas to master even for a small business.
From marketing, customer service, admin, finance, among others, it’s better if you have firsthand experience doing every single aspect of the business. This also gives you answers to that question about business processes because instead of just knowing them, you’re experiencing them personally.
Attend weekly training for business
This is especially important for new entrepreneurs or those who are new to acquiring businesses instead of building one from scratch. Running your own business from the beginning will have its differences with acquiring one that’s already earning profit or maybe struggling.
If you can find a business training that touches on this specific situation, you’ll develop better skills for it than this post could ever elaborate. Even if you’re experienced, you’re not as ready as you think. Take all the knowledge and prior information that you can get.
Find a community
This tip could also be start growing your network but a lot of people get intimidated once they hear the word network or networking. It’s got a bad rep, but only if you don’t take it as finding a community.
Don’t put pressure on networking like it’s a means of meeting people you can gain something from being acquaintances with. Instead, see it as a way to have a support system or just people who can understand your language when you can’t talk to any of your friends or family about anything business-related. This is already helpful enough as it is, or it could grow organically into a business opportunity for all the people involved.
Acquiring a business can be fun if you’ve prepared for the littlest details that can go wrong. If not, it will be like chasing a regular paycheck like an employee but with all the hassle and stress of running a business as an owner.
In that case, it’s not worth it. Don’t use acquiring a business as a way to skip the hard parts of starting one on your own. This process takes some sharp learning curves along the way too. These questions and tips are only your vantage point.