Buying a company can be a smart way to go into business for yourself, expand your current business, purchase new technologies, or invest in the company's potential.The advantage of buying an existing company is the hard work that the other owners have already done.You can inherit a customer base, employees, equipment, and real estate.The process of buying a company requires attention to detail, research, and some outside help, but it can be done by anyone with the desire and resources to see it through.
Step 1: Make a list of your reasons for purchasing a company.
There are many reasons why a company might be purchased.It is possible to expand the market share or geographical reach of the acquiring company through an acquisition.It is desirable for a company to have a well-known brand or skill employees.An investor could buy a company and sell it for a higher price.If you're looking for a company to purchase, identify them clearly.It is helpful to know why you are buying a company.
Step 2: Do you have skills or capabilities?
Think about what you will bring to the table in the acquisition.What are your company's strengths and weaknesses?Are you looking for companies that are outside your expertise?What type of company you need to find will be helped by your answers to the questions.If you want to acquire new technology or skills, you should consider how they will be integrated with your current operations.If you are buying a company, think about your own abilities.Do you have the managerial and organizational skills to run a company?
Step 3: Determine your financial capabilities.
You can estimate how much funding you can provide or borrow.You should consider your financing plans.Will you use debt or sell equity in the company?Will the current owner finance a part of the purchase price?You can narrow your search by company value if you know these terms from the beginning.
Step 4: Determine the best industry.
The industry it operates in will be a key factor in determining what company you want to buy.Consider why you are interested in buying the company.Do you think you can run a company in the industry you're familiar with?Does buying a company in this industry allow you to gain new technologies, markets, or strengths you don't have right now?Consider what you will gain by entering the industry and how it will work with your current operations.
Step 5: Pick potential purchase candidates.
Think about the kind of company you want to buy.What size company are you looking to buy in your chosen industry?Is location important in your decision?If you need a company to have other qualities, consider them.You can use this information to narrow down your search.Ask your friends and business associates to give you recommendations.You can find candidates in trade publications.You can search online to find information about each company.All publicly available information about each candidate should be analyzed.If the company is publicly-held, look at SEC filings, mentions in the media, legal proceedings, and other sources.A business broker can help you find suitable companies.To assess each company's ability to help you achieve your acquisition goals is your goal.
Step 6: You should prioritize your potential candidates.
The potential candidates are ranked by size, financing, location and attractiveness.
Step 7: Contact your choice.
If you find a company that is perfect for you, contact their management and let them know that you are interested in buying their company.You can take a tour of the company's facilities if the offer is well received.In the due diligence phase of the process, you and your team of experts will work to figure out if the company is a good investment.
Step 8: External consultants can be used.
Due diligence allows you to investigate the company to determine the true value of what you are buying and any issues that you need to be aware of.You will need the help of a team of experienced professionals to understand the candidate company.A lawyer is experienced in corporate acquisitions.Investment bankers and/or CPAs.IT and HR experts.Someone will manage public relations for the acquisition.For example, someone buying a trucking company might need a mechanic to assess the condition of the trucks.
Step 9: Review the company's financial statements.
The company's financial documents should be reviewed by your financial expert.If possible, obtain audited versions of these documents."pro forma" financial statements detail projected future performance.You can assess the current and future financial health of the company with this.The company's financial statements can be used to build a valuation.Take a look at tax records and financial statements over the past five years.Look for accounts that are delinquent.It could be a sign that the company's assets are in the hands of another entity.
Step 10: Customer accounts should be audited.
To assess its relationship with customers, look through the company's sales and financial records.Make sure the company's relationship with the 10 largest customers is still strong.Compare accounts receivable turnover to industry averages.This will show you how easy it is for the company to get payment.The creditworthiness of the top customers can be checked.The company may have a percentage of first-time customers.
Step 11: Look for physical assets.
Look at the company's inventory, machinery, buildings, and rolling stock.Check for liens on company assets.The condition, book value, and market value of each asset should be assessed by your team.It's important to make sure inventory isn't suffering from spoilage or inventory shrinkage.You can get a list of fixed assets to aid in your appraisal.
Step 12: HR records should be reviewed.
Information about benefits plans, agreements, contracts, and compensation can be found in a list of all employees of the company.There is an organizational chart detailing employee interactions.Records of employee lawsuits or complaints can be obtained.Determine employee turnover and duration.Look at how employees are paid.
Step 13: Legal documents to review.
You can analyze the company's existing legal documents by getting copies of them.Work with your lawyer and industry experts to identify any issues that might arise as a result of existing agreements.Some of the documents you will need are the founding documents.There is insurance coverage.Intellectual assets include patents, trademarks, or copyrights.Building leases, vendor and distributor agreements, union agreements and employee contracts are some of the operating agreements.Existing financing, like bank loans, will survive the transfer of ownership.
Step 14: You have the right to intangible properties.
All rights to the name, logo, patents, trademarks, copyrights, royalties, and other intangible property should be transferred to you upon sale.The transfer of ownership of intangible assets can be reviewed by your lawyer.You can work with your financial professional to figure out if the value of these assets will be included in your valuation or not.
Step 15: An initial offer should be made.
You will need to come up with an initial offer after completing the due diligence.Your team's valuation of the company should be reflected in your offer price.You can come in lower than your valuation, but the best move will depend on the situation.It is possible that a very desirable company will end up selling for more than the initial valuation suggests.Don't make a lowball offer.You can't negotiate with the present owners if you insult them.
Step 16: The contract price can be adjusted to reflect missing or false information.
Some owners would like to limit the investigation into their company.If you agree to buy and are taking your chances, the owner should be held liable for damages.
Step 17: Establish short and long-term cash flow needs.
You will need to finance the operations until the company's income can be used.Save about three month's worth of company operating expenses for this purpose.You should consider paying for any improvements made to the company's assets.Determine how much money you need to come up with right now and in the future.
Step 18: Pursue seller financing.
A lot of company acquisitions are carried out through seller financing.The seller of a company finances part or all of the purchase in order for the buyer to repay them.Debt financing can also be used as a supplement to seller financing.Work with the seller to negotiate seller financing.
Step 19: It is necessary to arrange equity financing.
The company can be sold in the form of common and/or preferred stock.Private equity or venture capital funds can purchase stock.This money is used to finance the purchase of the company.Money provided by you and your partners is also included in equity financing.The company must register with the SEC to sell stock to the public.This process can be difficult for small companies.You may be able to sell equity securities through a Regulation D offering, which is a specific kind of private placement sale.The exemption from SEC registration requirements is provided by this.A lawyer with experience in reg D filing can help you through the process.
Step 20: As needed, arrange external debt financing.
Traditional loan financing and the sale of debt securities are included in debt financing.To make sure that your future cash flows will be adequate to cover the debt payments, you'll need to carefully check the terms of any debt agreement.Debt may be secured with something.If you lose the pledged asset in the event of default, secured debt is more difficult to obtain.Debt may be classified as recourse and non-recourse.The lender can pursue the person until the debt is paid.After collateral is seized, this includes pursuing further payment.Non-recourse debt limits the collection of debt.
Step 21: The contract terms should be finalized.
Work with your team to draw out a contract that fully explains the purchase.The contract will be subject to a lot of revision before it is signed.When the time comes to finalize the contract, make sure to document each decision so you can confirm it.
Step 22: The seller should be involved in the negotiations.
The seller's non-compete agreement should be drawn up by your lawyer and seller.Discuss what assistance the seller will give.Even if the seller doesn't own the company, they will still help you transition.The seller has time to train you and your team in operating the company during this transitional period.The length of this period, the responsibilities of the seller, and their pay will be dictated by the contract.Negotiating these terms will ensure a smooth transition for you and the seller.
Step 23: The final purchase contract agreement needs to be signed by the seller.
The finalized contract should be reviewed by your lawyer before it is brought to the seller.The seller should meet with him to sign the agreement.
Step 24: The purchase price should be paid.
The purchase price is defined in the contract agreement.At this point, your company is the legal owner of the acquired company and all of its assets.
Step 25: Complete legal notifications.
To meet the requirements for reporting the acquisition and changing the ownership of the company, you need to work with your lawyer and financial professional.This may include a public announcement, documents filed with state and federal authorities, and many other requirements.The requirements will be more complex if the company is publicly-held.
Step 26: Meet your new employees.
Large meetings with all of your new employees are held.Explain your plans for the company's future and assure them that their jobs are secure, unless they aren't.This will allow you to get your new employees back to work as quickly as possible, so that they don't have to worry about job security.New employees should be involved in your planning and transition as much as possible.