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Nine Steps To Follow When Acquiring A Business

Aug 23, 2018
Posted by: Stearns Bank

When you’re acquiring a business, everything revolves around planning.

You have to make key decisions at each step along the way while following legal guidelines that you may not always be familiar with.

The key thing to know going into the planning process of a business acquisition is figuring out each hurdle you have to jump over before things start to really take shape.

Following these nine steps will be valuable as you start your acquisition journey:

1. Do Your Market Research

This research combines consumer behavior with economic trends to help improve your acquisition plan. It’s vital for you to understand the consumer base you’re buying into from the beginning. Putting together demographic information will help you better comprehend the opportunities and limitations for accumulating more customers.

2. Write Your Acquisition Plan

Having an acquisition plan in place helps lead you through each stage of the process. This plan will also help you get financing or let you know if you need to bring on a new partner. This plan is what you will use to get people to believe in you.

3. Meet With The Current Owner

Just assume the business you are looking to buy may be in financial stress. Meet with the owner and if there is a mutual interest you can start your due diligence. Be very careful and make sure to work with an accredited valuation analyst. Ask the business owner to supply you with historical financial statements and projected statements. With those in hand, your CPA can start thinking about the value of the business.

4. Financing Your Business

When you find out how much funding you will need to acquire a business, you have to find the right financing relationship. This is probably the most important step along the way. The direction you take in choosing funding will create the proper structure as to how you run your day-to-day operations.

5. Selecting The Right Name

You may need to rename the business you’re acquiring if it doesn’t fit your vision. If the business still has a solid reputation among its customers, you might want to continue using the existing name.

6. Make Sure The Business Is Registered

Remember to properly register the business you plan to take over with state and local governments. If you don’t, you could miss personal liability protection, legal benefits and tax benefits.

7. Get Federal and State Tax IDs

You will need to update the business’s employer identification number (EIN) for tax purposes when you take over. An EIN is also needed for opening a bank account. It’s basically a Social Security number for your business.

8. License and Permits

A federal license or permit will be needed if your business activities are regulated by a federal agency. Make sure to register with the right federal agency to see how to apply.

9. Open a Bank Account

Handling your new business’s finances with a small business checking account is usually the best route to choose. The account can help you handle all legal, tax and operations issues. An account also helps you stay legally compliant and protected.

The decisions you make in the early days of your acquisition can have a long-term impact on the health and viability of your business.

By buying an existing business, you want to avoid the pitfalls of opening your own shop. Look for a business with a strong customer base, growing sales, good staff, established procedures and (most important) positive cash flow. No matter what, choosing the right lender and the right financial institution will help you get things started.

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