5 Tips for Purchasing a Company

Buying another company is a huge step in your career and life, so it is not a decision to be taken lightly. Fortunately, we have tips to help cut down your anxiety and make the purchase a smooth process.

Spend 6 minutes watching the video or read on for the tips.

Make sure you like the owner you’re buying from

To ensure the transaction goes smoothly, establish a strong relationship and open communication with the company’s owner.

In order to iron out the purchase’s details, you’ll need to speak extensively with the owner even after the purchase goes through. You’ll basically be married to this person for several months (or longer), so it’s important you actually like them.

Hire a lawyer specializing in business transactions

A good lawyer is a necessity! They will protect your interests by accurately valuing the business and drawing up (or helping to craft) the term sheet, bill of sale, disclosure schedule and/or purchase agreement.

5 Tips for Purchasing a Company

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Just make sure the lawyer you choose is knowledgeable about business transactions and contract law.

Know what your purchase entails

Clearly you’re purchasing a company, but do you know what specific aspects of the company you’re purchasing? You need to know this well in advance.

Does you purchase include intellectual property, or just a client list and goodwill? Are you buying products created by the business in the past? Your purchase could also include equipment, employees, or even a building lease. Long story short, just make sure you know what you’re getting (and what you’re not!).

Choose a company whose culture and method of operation lines up with yours

If you already operate a business, look to purchase a company with a culture similar to your existing company. If the company you purchase operates in a similar manner, it will be an easier transition for you and the company’s existing clients.

This will also ease the transition for the company’s clients. Consistent service throughout the purchase process will help you keep their business. If you make major changes, it could jolt clients into leaving.

Sprint and Nextel’s merger in 2005 didn’t work out because of how different the companies were. Sprint was an old-school, straight-laced company, and Nextel was more of a scrappy start-up. Needless to say, these two styles did not mesh well.

Structure the deal so it works for you

One misconception about purchasing a company is that you need a huge line of credit to make the transaction to go through. This is not the case, because you can actually structure the deal so you pay the company owner a percentage of what you earn from sales each month.

This is definitely something to discuss with your attorney and the other owner.

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Author: Monika Jansen

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