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May 10, 2013 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Leonard Holler, Wyoming Entrepreneur WSBDC regional director
“Do you have any advice for buying an existing business to grow mine?” Glenn, Gillette
Some statistics say that nearly two-thirds of purchased businesses fail. Here are some strategies that might assist you in making your business acquisition more successful.
-- Have a plan for acquiring the business. Understand why you want to buy a particular business so that plans will help guide decisions during the process, which can also help you better communicate with employees and vendors, as well as measure your progress. There should be a solid strategic reason for your purchase.
-- Develop criteria for your selection of a target business or company. You should include revenue and cash flow parameters (size of business), preferred industry sector, location and investment preference. Then seek out your preferred targets at different venues such as trade shows, industry association meetings, searchable databases or with contacts in the industry.
-- With your plan in place, and your search criteria identified, take a close look at yourself and your team to assess the talent within the organization. You will need their leadership to assist in the negotiation, integration and management of the new acquisition. Outside professionals should be considered, such as your accountant, attorney, insurance broker, banker and valuation specialist, to assist with advising you in this decision. They help make up part of an acquisition team, besides you and your key staff.
-- After you have identified a target company by gathering sufficient information and evaluating it among other possible candidates, you need to determine that they are willing to sell. If they are, show them that you have an interest in the form of a non-binding offer. Once the offer has been accepted, complete some due diligence on the company to verify the information they provided in order to make your offer, and then evaluate return potential.
This would include developing projections based on your research of the industry and local market. Additional inquiries should be made regarding legal issues involving intellectual property, contracts, agreements, leases, employee status and anything else that might impact the performance of the new acquisition.
-- If you are satisfied with the due diligence, a binding letter of intent to purchase the company should be made with some funds changing hands. Once it’s accepted, a purchase agreement will be drawn up which includes issues, both large and small, that have been negotiated along the way. Negotiation of the purchase agreement is like a balancing act between you and the target company.
Even though each deal is different, and following these points is no predictor of success, your chances of a successful business acquisition can be enhanced by considering them.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email firstname.lastname@example.org or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.