Business acquisitions can be great options for entrepreneurs who want to step quickly into an existing operation. There is no need to go through a hefty and risky implementation stage, as all that heavy lifting may have been completed long ago.
As an investor – entrepreneur, you need to carefully analyze an acquisition and to review many aspects attached to the acquisition of a business. Acquisitions are not risk free and as an informed entrepreneur, you need to conduct your own business case analysis to see if this is the right fit for you, or if establishing a business from scratch is the way to go.
Here are some tips and information on business acquisitions for your entrepreneurial considerations:
- Ensure you are well equipped and prepared in all capacities (operational, management and financial capacities) before undertaking business and acquisition opportunities.
- As part of your analysis, you must conduct a business valuation process. Business owners will have an asking price; you will need to conduct your own due diligence to determine fair market value.
- Part of your valuation analysis will be to break down the sale price on a business into the asset value and value attached to goodwill.
- It is always advisable to seek out a Certified Business Valuator (specialized accountant) to conduct differing levels of valuation depending on scale/size of the business.
- Seek out the assistance of a lawyer to help in the legal acquisition process and to help formulate legal acquisition agreements.
- Be aware of contingent liabilities and other owner’s terms and conditions.
- Look at key financial information, indicators and trends such as revenue, net profit, owner’s draw (salary), assets, liabilities, current ratios and profit margins. It is advantageous to have this discussion with a qualified accountant on financial analysis of the business.
- Check if the acquisition package comes with owner training or skill set / business training? You should consider at least a small agreement for the transition period, and not just have the previous owner throw the key at you and leave.
- Business planning will be essential, even for the acquisition of an existing, viable business. Prior to acquisition you need to develop a detail business plan, and you will need to approach sources to acquire the funding necessary.
- Analyze the projected operations, markets and financials surrounding this business going a few years into the future. What are the projected trends, prospects, opportunities and risks? Seek outside professional opinions where needed.
Benefits of business acquisitions:
- The financial risk is less for existing viable businesses that have demonstrated a track record of earnings, profits and stable operations.
- No risky implementation phase vs. risk in a start-up scenario.
- Immediate access to cash flow, markets, customers, human and financial resources, and partnerships.
- The new owner can realize a potential immediate return on investment and equity, and depending on financing of the acquisition, realizes a break-even point sooner.
- Financing may be easier to secure, as financial institutions can see a track record of financial performance.
- Not only are you a new entrant by acquiring the business, but you may be decreasing the competition, as this business may have competed against you.
- Acquiring the intelligence, strategies, proprietary knowledge of the business and previous owner provides you with a competitive advantage.
As an entrepreneur you will need to decide what will be the best self-employment opportunity for you, whether to start a business from scratch, or to acquire an existing successful business. Always seek professional services to help inform your decisions on opportunities.
Buying a Franchise – Another Great Opportunity for Entrepreneurs
As an entrepreneur you have choices to make when going into business. You can start a business from scratch or you can acquire an existing viable business. Also on the list of opportunities is buying into afranchised opportunity.
Investing in a franchised venture is a little different from acquiring a business or hanging your own sign out. In this business scenario, you, the franchisee, agree to conduct business under thefranchisor for a specified duration. Franchised opportunities involve sophisticated agreements between you and the franchisor.
Buying a franchise brings a wealth of benefits, but you also need to be aware of the conditions around buying a franchise. Here are some tips and information on franchised opportunities:
- Franchises are plentiful; ensure you research each for the right fit against your operational, management and financial capabilities
- Franchises come with strict operating standards, and you must be aware that you will need to adhere to these standards such as pricing, marketing, design, customer service, employment, etc
- You will need to pay royalties or monthly payments for ongoing franchise costs
- Most established strong franchises have rigorous training programs and schedules, both at your location and possibly to a head office location
- In franchised opportunities, the master franchise holder or company will conduct frequent inspections to ensure consistency of standards
- Franchised opportunities will not provide the flexibility that you may see in your own start up scenario
- Most of the time with established bigger franchises, volume of business will be significant and margins may be lower than experienced in your own start up scenario
Benefits of franchises:
- The leg work has been done, and if you buy a franchise, you buy a brand, loyal customer base, standardized practices and operating procedures
- Through the power of a large franchisor, economies of scale are achieved, which results in greater negotiating power, buying power, marketing power, etc
- You could piggy back on to some of the largest national marketing and advertising budgets; normally you don’t have to worry about marketing and advertising
- With the franchise comes a support team of corporate managers and executives; the franchisor does not want you to fail and will assist
- Larger franchises with brand recognition and existing loyal global customers will possibly result in immediate revenue streams
- Franchised opportunities open the door for additional funding sources, and in some cases, franchisors offer in-house financing
- Franchisors undertake extensive product and service development to open new doors and revenue streams for franchisees
- If you do well, franchises may offer expansion opportunities (i.e.: the offer to run another location or two); fast food franchises are good examples
- If you do extremely well with multiple locations, you may be eligible to invest and run master franchised opportunities, such as managing the franchisees within a whole district, state, or province or territory.
Disadvantages to be aware of:
- Franchised opportunities can be capital intensive
- Be prepared for heavy investment and the need to acquire funding sources
- Franchised agreements can be complex, with strict terms and conditions
- Franchised opportunities come with mandatory fees and monthly royalties
- In owing a franchise, you give up some control over the business
Similar to other opportunities, you need to investigate whether or not buying a franchise is your way into entrepreneurship. With heavy due diligence on your part, franchised opportunities could provide you with a stable business opportunity with ample rewards.