Buying a Business in 6 StepsJean-Claude Desnoyers
Are you planning to acquire a new business in the coming years? As a Chartered Business Valuator (CBV), I can offer my services to assist you in this important decision. With my colleague Alexandra Danis, Certified Human Resources Professional (CHRP), we can support you throughout this transaction, from the first glance at a business you want to buy to how you can increase its profitability and value once you own it.
I, therefore, propose to present you the different stages for which we can assist you before, during and after the purchase of a business over the next few weeks.
Step 1: The preliminary assessment
This step is a first evaluation of the business: before even proposing an offer to purchase, the potential of the business in question must be assessed. Different factors can be observed: does the current owner want to sell his business? Why does he want to sell it? What are the future profits that can be expected? Is this the right time to acquire this business? If, after reviewing some basic information, you are interested in the business, you will ask the seller for additional information that is generally confidential, such as financial statements for recent years or salaries paid to owners and related persons. Before answering you, the seller will usually want to sign a non-disclosure agreement to protect those details. If, after this initial assessment, you decide to proceed with the acquisition, the information collected will allow you to move on to the next step.
Step 2: The Letter of Intent
Once the preliminary assessment of the business is completed, a letter of intent will be written. This letter is not a final agreement; it is a first offer that will open negotiations between the seller and the buyer. Some additional information may be required to write the letter. This may include, but is not limited to: the proposed price, how that price will vary between the date of the offer and the closing date of the transaction, other terms of the offer, and whether it is subject to due diligence, including confirmation of the CBV’s valuation of the fair market value (if the valuation was not made before the letter of intent was prepared). The items discussed during this first negotiation will be formally drafted in the purchase contract.
Step 3: The Purchase Contract
After having discussed several modalities of the sale and purchase of the business, it is here that the real negotiation will take place. At this stage, the final agreement between the parties will be put in writing; it will include items such as the price at which the business is sold and changes in the price at the date of possession. It is also in this contract that the final decision will be made as to what the transaction includes (for example, employees who will continue to work for the business, the location of the business or contracts that come with it). Once the parties have agreed on the various clauses, they will sign the contract. Preparation for the day of taking possession will then begin. Prior to this day, measures that can be taken to increase the profitability and/or value of the acquired business should also have been identified.
Step 4: Taking possession
Between the time of signing the contract and taking possession of the business, several elements must be considered to ensure the most appropriate transition possible. Indeed, the very day of the takeover must be well planned if you want to ensure that all the essential pieces are in place for the business to function as soon as it is acquired. For example, you should have installed the required software, trained employees if necessary, or migrated essential data (such as customers information, financial information or bank information). Once you have taken possession, several other questions will have to be addressed if you want to make your purchase as profitable as possible.
Step 5: Integration
This step is essential to bring the acquired business to its full potential and ensure that all elements of value are retained. Here, we can help you set up an integration plan: how to use marketing, human resources, technology and financial services to transfer this value? It will be important to set goals, steps to achieve them and deadlines. For example, if a website already set up is transferred to you with the business; do you want to keep it or give it a new image? This step also includes ensuring that you fully understand the corporate culture of the acquired business and, if you need to make changes, planning them well. At this stage, measures to increase the business’s profitability and/or value will also be implemented.
Step 6: Post-purchase evaluation
With this last step, the objective is to look back at your experience: what went well? What could have been accomplished differently? Were all the necessary elements sent to you before the date of possession? This step is strongly recommended if you want to acquire other businesses in the future; it will prevent you from repeating the same mistakes and allow you to improve.