Opportunities to buy or sell a business or build on the one you own are significant milestones for any entrepreneur.
However, the risks hiding inside poorly vetted opportunities can be easily overlooked in times like these with brisk merger and acquisitions (M&A) activity driven by factors that include a surge of retiring business owners, historically low interest rates since the Great Recession, and the availability of private equity capital in the market.
With the right business advisory partner, you can see your way through to the right opportunities – and be prepared to walk away from the wrong ones. At Kirsch CPA Group, our clients rely on our M&A advice because our holistic accounting approach gives us a thorough understanding of your business, profitability, forecasted cash flow, and overall financial health.
They also turn to Kirsch CPA Group for business valuations that can leave a business poised to quickly take advantage of a profitable opportunity to sell their business. A business valuation also leaves a business positioned for adding partners or offering incentives to employees as a way to boost recruitment and retention.
6 Ways to Ensure a Profitable Acquisition
When you have the right accounting partner, you can be sure that there are no shortcuts in the process of ensuring the success of your acquisition. Here are six key steps for ensuring a profitable acquisition:
- Make sure you have a thorough and detailed understanding of the industry and where it is going. What are the success drivers? The risks? Don’t limit yourself to a short-term analysis. The purchase of a Blockbuster Video franchise probably looked like a sure thing in 1987.
- Understand the investment you are making in time and effort relative to your objectives. Are you looking to build an empire or a lifestyle? Many retail businesses are open 365 days a year. Underestimating the work in favor of a romanticized view of the business is a common mistake. Many people dream of quitting their jobs to run a bed and breakfast in an idyllic location. Far fewer calculate the math that links growth in occupancy to time spent cleaning bathrooms.
- Do your homework. Be persistent about gathering the data you need to see the deal for what it is. Assume nothing and don’t let red or yellow flags go unaddressed.
- Conduct a market-based valuation to learn the true value of your acquisition target.
- Make sure your financing makes sense. This is not the place to dip into your retirement fund.
- Don’t be afraid to walk away if your due diligence raises red flags. This is one of the largest and riskiest decisions you will ever make. Don’t let your emotions trick you into overlooking or underplaying the downside.
- Market analysis valuations
- Cash flow planning
- Sell-side due diligence
- Buy-side due diligence
- Deal oversight
- M&A valuation
- Estate and gifts tax valuation
- Exiting partner valuation
- Buy/sell agreement valuation
- Divorce proceedings
- Employee stock ownership plans (ESOP)
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