How to Buy an Existing Business
A business acquisition is when an individual or company purchases all or most of the shares in another company.
Consequently, when the acquirer buys more than 50% of the target company’s shares, they can make almost all decisions concerning the company without the consent of the rest of the shareholders flexoffers.
Steps For Buying an Existing Business
1. Build a Plan
Consider the reasons for buying the business. It could be to venture into new markets, increase market share, eliminate the competition or as part of a diversification strategy.
2. Assemble an Acquisition Team
The acquisition team should include key executives, investment bankers, acquisition lawyers, IT specialists, public relations officers, and human resources experts.
3. Conduct Research and Due Diligence
The process will involve two phases:
- Phase 1: Check the company’s public information such as the website, job listings, and news to analyze the suitability of integrating the business with your existing plans.
- Phase 2: Contact the company, talk to management, and tour the facilities with the aim of gathering more information such as the number of employees, or how successfully the company is operating.
4. Prepare Documentation
A business acquisition requires several documents. These include a non-disclosure agreement, letter of intent, indication of interest, purchase agreement, and confidential information memorandum.
5. Make an Offer
As the buyer, you have to make the first offer. Always maintain good impressions and offer a fair price.
6. Negotiate Terms
Aim to reach an agreement that is beneficial to both parties.
7. Form and Sign the Contract
A lawyer should be present during the negotiations to draft the final agreement to buy the company.
Funding a Business Acquisition
Any buyer will want to ensure that any acquisition can be appropriately funded by the acquiring company or individual. If enough capital is not available to fund the acquisition outright, acquirers can consider financing the acquisition. One of the main ways of funding a business acquisition is via business acquisition loans.
To qualify for the loan, a borrower will provide several documents outlining creditworthiness and the relevant acquisition criteria. These include a reasonable credit score, signed letter of intent, borrower information form, personal financial statement, personal/corporate tax returns for the past three years, business financial statements for the past three years, a debt schedule, management experience, debt service coverage ratio, and the down payment.
The process of buying an existing business is lengthy but rewarding when conducted properly. Ultimately, it is always crucial to remain fair to both parties and conduct business while carefully considering the views of the other party to successfully close a deal.