Entrepreneurs have many opportunities available to grow their business. One strategy that business owners often contemplate is expansion through acquisition.
There are various strategic reasons why businesses choose to merge with or acquire another business in their industry. Regardless of the reasons, acquiring a business is a large undertaking. And business owners must be strategic and diligent as they move forward with such a deal.
Acquisitions receive a lot of attention
One reason why business owners must approach acquisitions carefully is because these endeavors often garner a lot of scrutiny.
A recent example would be the news of TFI International’s acquisition of UPS Freight. But many others have been under the spotlight as well in the last few decades, including Disney’s acquisition of 21st Century Fox and Google’s of YouTube.
The larger the company, the more attention an acquisition will receive from consumers, the media and other business owners alike. And business owners must be prepared.
Conducting due diligence is critical
There are many things business owners should consider proactively when faced with an acquisition, including:
- Legal liabilities: This step is important on both sides. Business owners should have a candid conversation with the other party and conduct careful research about any legal issues – past or present – so they can protect the reputation of their own business.
- Finances: Business owners should carefully evaluate their finances before, during and after an acquisition. Owners should look into all aspects of their finances, from the purchase itself to the other party’s payroll information. This is essential to avoid complex tax issues as well as any other potential legal penalties under California law.
- Branding strategies: When acquiring another business, many want to apply their name to the other business. However, this might be a mistake. It is often beneficial to maintain a trusted brand name after an acquisition to also maintain the consumer base and following that brand has.
Forbes reports that growth will be a challenge in 2021. This is something to be aware of, as the state of the market can impact an acquisition’s success. However, it is critical that owners are aware of these steps and understand how to approach the situation.