Are you looking for acquiring small businesses? Here is a complete step-by-step guide for investing in a company in the best possible way.
Do you want an already established company where you won’t have to start things from scratch? Or is it your business need to diversify your business horizontally that is requiring you to make this decision? In any case, you just can’t go and buy a company randomly.
You’ll definitely have to perform due diligence and make sure that you finalize the deal in the best possible manner.
In this article, we’ll be sharing seven steps for acquiring a small business that would actually clear your mind about how to acquire a small business.
Steps for acquiring small businesses:
Here is a step-by-step process to be an owner of an already established business venture. This can give you a lot of profit and can develop your business sense in the easiest way. Just follow these steps mentioned below.
1. Identify your interests in investing in a company:
The first step that you should be following for investing in a company is to find what type of industry you want to dive in.
If you ask us, consulting and professional services companies could be amongst the best options that you can get for acquiring a small business.
What you should ideally look for is the business making $1 million to $10 million of yearly revenue. With this revenue stream, you can be sure that the business is operating well and has a decent customer base. Moreover, it also provides an indication that you can upscale the business depending on your capabilities.
Furthermore, you might reach a setting where the existing owner of the business can provide you with the necessary training to run the specific business. In addition, you might not have to manage everything on your own by hiring a professional manager for this purpose.
But all of these are just options; you’ll have to decide how you want to take things while investing in a company.
2. Look for people who want to sell their business:
The next step is to look for sellers who want to sell their businesses. This will help you in cracking a better deal. As a rule of thumb, people sell their businesses at three times their annual revenue. But when someone is willing to sell, there are higher chances that you can get a better deal.
Now the question is where to look for those motivated sellers. The answer to this is you can find your sellers at nearly the same platforms through which you acquire your clients i.e., social media and other networking platforms available. All you need to do is to put yourself in the shoes of an investor and start finding the opportunities.
3. Look for the numerical figures:
Before you finalize your decision to buy a particular business, you’ll have to see in the cash flow trends and other numerical figures.
One of the suggestions here for people with the question of how to acquire a small business is that you should sign a non-disclosure agreement with the owner of the business.
With this agreement, the business owner would feel at ease to share the financials with you. Make sure that while giving a look at these financials, you find the major ways of earning cash flows and the expenses that are part of the business.
In addition to it, find the weaknesses that the business has at the moment. It can help you in improving the profit of the business considerably within a very short span of time.
4. Establish a connection with the business owner:
In order to acquire small business clients, you’ll have to think of their business as your business already. Because initially, it might not be as close to you, but definitely, it would be close to their hearts.
You just can’t go give them money and take it from them. You should develop connections with the business owner while acquiring a small business.
Provide them with your future plans for running the business and the possible chances that you could be willing to make in the existing model or product offerings.
With all these steps taken for investing in a company, there are greater chances of getting to a deal in manner that could bring in value for both the seller of the business and you too.
5. Finance the deal:
Like any other business, you’ll have to finance this deal as well. You might set up an option where the profits of the business could be used for entire financing. But this might not be possible in every case. So, in those situations, what you can do is to look for options for acquiring a small business loan. This loan can be sanctioned by banks depending on your credibility and the pitch you use for presenting the business idea.
Otherwise, you can also look at the search engines for how to acquire a small business loan, and it can help you in highlighting other options for financing the business venture. You can get a better overview of different modes of funding available by reading “A guide to start up finance“. You can use them for acquiring small business too.
6. Due Diligence is Important:
Once you are sure that the particular business is the best for investing in a company, then close the time for due diligence. You should be sure that you are making the right decision. For that, seeking help from lawyers and financial experts on closing the deal is important.
Additionally, don’t ignore the employees of the business before closing the deal. You might want to talk to some of the employees holding key positions in the company. Clarifying them the way the business is going to run, their roe, and your expectations from them would be highly important to ensure future success.
So, you can’t be acquiring small business without giving them due importance. Moreover, continuing with the same employees could be helpful for you as well as they would already be running the business and know how to perform their tasks. But this aspect varies from business to business. And you might have to deal differently in every situation when it comes to investing in a company.
Acquiring a small business loan and acquire small business clients could be two other dimensions where your research is going to be important and should be part of the due diligence process while you plan to invest in a company.
7. Seek help from the original business owner:
It is true that you’ll be looking to become the business owner as soon as possible. But before you can be termed as the owner of a successful business, it is highly important that you give some time to the old owner for the transition.
This transition would be important for you as well as in the meantime, you can learn from that owner. Moreover, the processing and projects carried on by the company would be easily transferred. And even employees could get time to accept the change and be a part of the new company. Thus, it is very important that you should not only let the business owner get out of the business smoothly but use his/her time to get the most benefit for your new business too.
Congratulations! You are now an owner of a small business and have successfully found an answer to how to acquire a small business. With these steps fully performed, we are sure that you’ll get the best deal done for yourself.
Make sure that you make a clear dealing when it comes to acquiring a small business loan and acquiring small business clients as they can have a long-term impact on the success of your new business.
In case you have any other questions regarding investing in a company that we can help you with, feel free to ask it in the comments section below.