The Basics of Business Acquisition
After several years of economic downturn, global markets are seeing a healthy comeback of mergers and acquisitions. A rise in business confidence is fueling the upward trend of mid-market mergers and acquisitions, ranging from twenty million to one hundred million US dollars. Another reason is that realistic prices and the proper valuation of companies are driving these deals through.
Entrepreneurs who have intentions about selling their businesses will realize that the process of acquisition is no easy task. It seems that the risks of acquisition usually fall on the end of the sellers and not the buyers. Estimating the value of a business is a complex process, and determining a fair price is even more complicated. That is why having expert advise during acquisitions and business valuations is highly recommended in the fields of mergers and acquisitions.
Preparing Your Business For Acquisition
If you are considering the possibility of selling your business down the road, there are things you can begin to do to prime a company for acquisition.
- Set-up a contract management system to organize and track all the business contracts your business has entered since its incorporation. Acquisition also involves turning over all contracts to the buyer.
- Get your Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) in order. You need to be ready to present your profits and growth when the time comes.
- Keep a solid Human Resources Deportment. Follow all labor mandates and ensure that manuals and policies are in place.
And when a potential buyer begins an inquiry, do not just open your doors—and your books—immediately. Take time to profile a potential buyer and be privy to the information you share, knowing that the buyer is looking around and has probably approached several other companies.
Determining The Value Of Your Business
Now lies the all-important question of how much your business is worth. There are two basic valuation methods used today. First is the asset-based approach that looks at the company’s book value, which is equal to assets less liabilities. It can also look at the liquidation value, computing how much you will be able to sell off all your assets, pay debts, and distribute any remaining dividends to shareholders. And the second method is the earnings and cash flow that bases the estimate on your future cash flows and projections. After deciding on which method to take, the actual valuation follows.
This is only part and parcel of a long process that precedes any acquisition. Expect to invest time and effort into this endeavor. But undoubtedly, your best investment will be availing the expertise of a financial adviser who will help you get the best outcome possible for the acquisition of your business.