23 January 2024

10 Things You Should Check Before Buying a Company

By Ronald Smith

Thinking about buying a company? It’s an exciting opportunity, but you want to make sure you do your homework before making a big decision. Here are 10 important things you should look into:

  1. Financials: The first thing you need to check is the financial health of the company. Take a look at their profits, debts, and overall stability. It’s crucial to know exactly what you’re getting into, financially speaking.
  2. Customers and Market: Who are their customers? Are they loyal and satisfied? It’s important to assess the market they operate in and understand if it’s growing or declining. Knowing their position within the industry will help you gauge their potential for success.
  3. Products or Services: Take a close look at what they are selling, whether it’s products or services. Do they have a unique selling proposition? Are there any patents or trademarks? Evaluating their offerings will help you determine if they have a competitive edge.
  4. Employees and Culture: A company is only as good as its people. Get to know the employees and the company culture. Are the employees happy and engaged? It’s essential to consider if there is a good fit between the company’s culture and your own values.
  5. Legal and Regulatory: You don’t want any legal surprises down the road. Make sure the company is compliant with all the relevant laws and regulations. Check for any ongoing legal issues that might affect the business.
  6. Technology and Infrastructure: Assess the company’s technological capabilities and infrastructure. Are their systems up to date? Will you need to invest a significant amount in upgrades? Understanding their technological landscape is key to plan for the future.
  7. Growth Opportunities: Where is the company headed? Are there any untapped markets or potential for expansion? Evaluating their growth potential will give you an idea of the long-term possibilities for the business.
  8. Competition: Who are their main competitors? How does the company differentiate itself? Understanding the competitive landscape will help you assess the risks and challenges involved in the acquisition.
  9. Reputation: What do others say about the company? Check online reviews, industry publications, and customer feedback. It’s important to gauge their reputation, as it can greatly impact their success in the future.
  10. Reason for Selling: Lastly, find out why the company is being sold. Are they facing financial difficulties or looking for a new challenge? Understanding their motivation can give you valuable insights into their current situation.

Remember, buying a company is a big step, so take the time to thoroughly evaluate these factors. Good luck with your decision!

10 Things You Should Check Before Buying a Company

So, you’re thinking about acquiring another company for your small business or startup. That’s exciting! But hold on a second, just because you can do it, doesn’t mean you should. You need to be smart about it and make sure it’s the right move. To help you out, I asked 10 small business owners for their advice on what to look out for when considering an acquisition. Here’s what they had to say:

“What should I look out for when sizing up and considering an acquisition for my small business or startup? Why?”

Let’s dive in and find out:

1. How the Acquisition Extends Your Brand Message

When I think about my company and the acquisitions we make, it’s like reading chapters in a big story. I want it all to make sense to our customers, and I want each acquisition to flow naturally into the next. It frustrates me when other companies buy companies that don’t seem to fit at all. It feels like they’re just playing a game instead of running a business. – Rob Fulton, Exponential Black

2. Making Sure the Numbers Add Up

In the past, I’ve lost a lot of money on acquisitions because I didn’t check if their finances, sales, and other systems matched up. It’s important to have a reputable firm come in and thoroughly review everything. And then, you should review it yourself. If a company refuses to let you see everything and dig deep into their operations, they’re not worth your time. If you’re thinking about buying them, they should have no problem being completely transparent. – John Rampton, Due

3. A Strategic Non-Compete Provision

If you want to buy a competitor’s business, you need to be careful about the non-compete restrictions. These restrictions determine how long and where the competitor can start a similar business. You don’t want to unintentionally help your competitor start a new venture that harms the business you just bought.

4. The Continuing Expenses of Operating That Business

5. Finding the Right Fit for Our Company Culture

When you’re at the point where you can afford to buy another business, it’s important to consider the employees that come with it. Do they share the same values as our current employees? Can we transfer our company’s culture to the new company? Will there be a lot of overlap between the new and old business in terms of employees?

6. Legal Matters and Concerns

Before making any decisions, it’s crucial to conduct thorough background checks on the company and its key personnel. Have they faced any lawsuits? What’s their reputation like? How do they get along with existing shareholders and investors? Are there any internal conflicts? While it’s tempting to focus on all the positive aspects of this acquisition, it’s important to remember that nothing is ever completely perfect.

I want to help you figure out if you’re ready to become an employee, says Dave Nevogt from Hubstaff.com. It’s important to consider a few things before making that decision.

1. Number of Competitors:

It’s crucial to know how many competitors the company you’re interested in acquiring has. It’s even more important to find out if the market conditions are favorable in the short-term. Buying a company during a down market might seem like a good idea for a lower price, but you must also make sure that the technology, patents, or know-how you’re acquiring are in a niche with low competition. Otherwise, instead of gaining a competitive advantage, you’ll end up with a headache.

2. Assessing Yourself:

You need to assess your own readiness to become an employee. Think about your skills, experience, and what you bring to the table. Are you equipped with the knowledge and expertise to thrive in the new role? It’s essential to evaluate whether you have what it takes to be successful in the company you’re considering joining.

When your startup gets bought out, and if you stick around, you’ll probably end up becoming an employee of the buyer. Are you willing to go from being your own boss to working for someone else? As a startup, your investors are more like partners – you’re like knights of the roundtable. But when you get acquired, it’s like handing over the keys to your kingdom and hoping that the knights will still answer the door when you come knocking. – Jeff Denby, PACT Apparel

9. Shared Company Values

When we consider buying another company, our main focus is on whether they share the same values as us. It’s not just about whether their products, skills, or talent complement ours. It’s about knowing if a potential acquisition aligns with how we operate as a company. This helps us determine if they will genuinely work with us to help us grow and improve. – Tomer Bar-Zeev, IronSource

When you buy a business, you’ll purchase it at a price that’s considered fair in the market. But to make the purchase truly successful, you need to get more value in return. And how do you do that? By finding new ways to create value when you merge the business with your own.

So, what can you do? Maybe you can expand the current customer base. Or maybe you can bring in new customers. Perhaps you can even eliminate competition. The key is to find a way to turn nothing into something, or even better.

Remember, it’s all about seeing the potential and finding the path to make it happen. And when you do, you’ll be able to make your acquisition a true success. ~ Adam Roozen, Echidna, Inc.