5 tips on small business acquisitions

by Doug Todd on 9/25/2014 in business

For most small business owners, organic growth takes time, patience and a lot of hard work. In some instances, growth through acquisition of another company may be a quicker and better route.

If you’re a business owner and considering growth through acquisition, here are five practical tips to guide you:

1. Fit is critical

I have seen firsthand what can happen when one business acquires another business and the two do not mesh. If you are considering growth through acquisition, you need to consider carefully whether the target company fits with your company in terms of culture, customers, suppliers, production methods, etc. A bad fit can destroy the value of the target and your company.

2. Plan to be distracted

People often underestimate the time and energy needed to acquire a new business. If you are trying to run your existing business while acquiring a new business, you need to take care not to neglect your existing business. Typically, this means that you will need to put in more hours during and after the acquisition and will need to better delegate key functions to others in your organization.

3. Avoid successor liability

Many people believe that a buyer in an asset sale cannot be held liable for any obligations of the seller. Unfortunately, in certain key areas, Michigan law says otherwise. In Michigan, unless proper steps are taken, a buyer can be held liable for the seller’s taxes and unemployment liabilities. Take the time to determine (with the help of the seller and your advisors) whether there are any outstanding tax or unemployment liabilities and, if there are, escrow at closing the amount of such outstanding liabilities until the seller properly demonstrates that they have been paid in full.

4. Take your time, but not too much time

You need to take the time necessary to understand the business you are acquiring. However, generally speaking, the longer it takes to close a deal, the less likely the deal will close. If you take a long time to get to closing, you run the risk that the parties will suffer from deal fatigue and that the target company will experience changes in the business that impact the deal. For this reason, you should not rush to close, but you should act with a sense of urgency.

5. Get help

Acquiring a business can be an emotional rollercoaster ride for the buyer and the seller and, unless you have been through the process many times, there is much to learn. For this reason, you should surround yourself with trusted advisors who have significant deal experience. Your team may include, among others, a CPA, attorney, business broker or investment banker, lender, valuation analyst and financial advisor.

In short, growth through acquisition can be an excellent strategy when the acquisition is done properly. While there are no guarantees, these tips will certainly get you on the path to a good result.

Source: Siebers, Jonathan. “5 Tips on Small Business Acquisitions.” GRBJ. Grand Rapids Business Journal, 25 Sept. 2014. Web. 25 Sept. 2014.