3 minute read
Six strategies for acquisition planning
Acquisitions can present an excellent way to grow your business practice quickly, gain valuable market share, and improve revenue and profitability. You’ll dramatically increase the chances that your acquisition will be a success by incorporating these considerations into your strategic acquisition planning.
1. Know what to expect
An acquisition will have profound changes on your business and the way you operate. Developing a solid understanding of your strategic objectives before you begin your acquisition and planning strategy will reduce the potential for surprises and unhappy outcomes. A carefully planned acquisition can help your business achieve a variety of strategic objectives, among them:
• Economies of scale
• Greater staff efficiencies
• Stronger business reputation
• Broader scope of services
• Greater client base
• More depth of staff
• Higher return on investment
2. Know what you want
Effective acquisition planning is a complex process that demands making the right moves at every step. Preparation is critical, and the most important element is self-knowledge. A buyer with a well-prepared acquisition strategy is able to:
• Describe what an ideal acquisition looks like.
• Show how that acquisition will fit into the business.
• Deliver a clear, compelling message about why they want to purchase a seller’s business.
• Explain how they’ll on-board and service a seller’s customers.
• Detail how they’ll scale up services to match the demand of the added client base.
3. Do your due diligence
The timeless warning, “let the buyer beware,” is valuable advice for the acquisition planning process. Sellers may have a variety of legitimate reasons for wanting to turn their business over to someone else. It may be as simple as retirement or succession planning. Or it may involve something that’s hidden, such as a scandal that might resurface and affect your profitability or reputation.
If the business appears to be a good fit with your strategic objectives, work with your accountant, attorney, and other trusted business advisors to perform a thorough analysis of the business, including:
• Assess the staff to better understand their background and experience.
• Review the client lists for revenue streams and length of relationships.
• Ask for bank statements and compare deposits to recorded revenues.
• Use tax returns to validate revenue reports.
• Examine ratios, margins, and non-operating expenses.
• Study revenue trends and identify where revenue streams may be vulnerable.
4. Get the timing right
Timing is everything when it comes to acquisition planning. Try to buy at the wrong time, and you might end up hurting your business. What are the signs that now may be a good time to pursue an acquisition?
• You have a really strong brand reputation
• You’re flush with cash
• Your team is hungry
• You have a winning strategy
• You can’t meet demand
• Your system is efficient
• You’re ready to move up
5. Seek diversity
A key benefit of a strategic acquisition plan is that it can make your business more diverse. Most of us learned the wisdom of the “don’t put all your eggs in one basket” message long before we began our careers. Applying the same concept to your business is wise. Adding different, but complimentary, products or services that fit within your current competitive skill set provides the same risk management benefits as diversifying an investment portfolio. If the bulk of your clients and those of the business you’re considering can be characterized as part of the same group, you’re making the same mistake a novice investor makes when he sinks 95 percent of his funds into a single stock.
6. Be a competitive buyer
As acquisition activity heats up, the buyers who are poised to move first stand a significantly better chance of capturing the right deals. Develop your strategic acquisition plan and remember that a profitable merger or acquisition should dovetail nicely into your existing business plan and should never distract from, damage or take away from the business you’ve already worked hard to build. Do your groundwork ahead of time so you can position yourself as the ideal buyer as soon as an opportunity presents itself:
• Perform in-depth market analysis and take a good, hard look at any upcoming opportunities even if you’re not ready to move forward.
• Investigate financing options and make sure you pre-qualify before drafting a bid.
• When you find a target, find out as much as you can about the seller’s needs and true motivation for selling.
• Once you’ve decided to pursue the business, move forward quickly with a fair opening bid to limit competition.
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