One of the most effective ways for you to significantly grow your company is to acquire other competitors within your market. Of course, this process is easier said than done—business acquisitions take a lot of planning, not to mention money.
Here are some tips to help you prepare for a business acquisition as a buyer.
Have a strong balance sheet
Your balance sheet will provide a thorough summary of your assets, liabilities and shareholder equity. To provide you with some extra leverage as you prepare to make your acquisition, your balance sheet should be as thorough and organized as possible. This will make it easier for you to demonstrate the profitability of your company based on its current operations, which will in turn allow you to get the loans you need to make the transaction happen.
What do lenders like to see on a balance sheet? Here are a few examples:
- A relatively low overall debt ratio
- Working capital needs that are based on a line of credit rather than being tied up in debt
- Debt amortization estimates that match the economic life of assets to provide you with greater leverage
- Paid-off debt that was not particularly necessary. In addition, you should make sure you have a business structure that will allow you to avoid being taxed twice so you can keep cash in your business. Take a close look at your structure and consider making a change to that structure long before making an acquisition if you believe it will help you financially.
Know what you’re looking for in an acquisition
You shouldn’t just buy up a business for the sole purpose of getting an acquisition. You should ask yourself if the acquisition will help you diversify your customer base, if it will allow you to expand your business into a wider geographic area, if you have a certain target number of employees or revenue in a potential acquisition and, most importantly, if you can actually afford to make the acquisition.
Make sure you have strong leadership and plenty of advice
You will not have a successful acquisition without a strong management team in place. This team will ensure you come out of the acquisition financially healthy and operationally secure. Having a team of advisors such as attorneys or respected business peers can also help you more smoothly conduct the acquisition, especially if it is your first time acquiring another company. Consider meeting with lenders in advance as well so they can get more familiar with your business, get a better sense of your goals and provide you with more personalized advice about how best to proceed with the acquisition.
For more information about how to make a business acquisition go as smoothly as possible, contact an experienced corporate planning attorney in the U.S. Virgin Islands.
Steven K. Hardy is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.