Evaluating a potential business acquisition

Deciding whether a business is right for you is a complex process. The following are some of the questions we can help you answer.

General

What are the critical factors that make this business a success? How will these factors be impacted when the business is sold?
What are the major risks facing the company? How will you manage them?
Do government policies affect the business? How likely is it that those policies will change?
Are there synergies/economies of scale that could be realized when you merge the new business into your existing business?
Is the business cyclical? How does that affect cash flow and working capital requirements?
Are there any contingent liabilities, outstanding warranties or unresolved lawsuits against the company?
If you plan to make changes to the business what will they cost and how will you pay for them?
What are the real opportunities for future growth?
Are you buying at the top, bottom or middle of the business cycle?

Is it an easy or a difficult business to manage?
What specialist knowledge/experience is required? Do you have that knowledge?
Who are the key employees? What will be the impact if they leave? Can they be replaced? Are they covered by existing management contracts? Have the key employees signed non-compete or non-solicitation agreements? Are they underpaid in relation to the market? Will you be able to meet with them prior to closing?
Are wages and salaries at market levels?
Is the staff turnover rate reasonable?

What intangible assets will you be purchasing? How secure are those intangibles e.g. have patents been taken out?
Are the fixed assets in good condition? Is there deferred maintenance?
What will you have to spend on capital assets over the next two or three years?
Is the company technologically up-to-date? What will it cost to bring it up-to-date?
What systems does the company use? Are they working properly?
Are there surplus assets that could be sold?

How important is the current location? Is there alternative space readily available? What would it cost to move?
What is the condition of the lease? Can it be transferred to a new owner? How long does it have to run? What are the renewal options?

What are the company's major products? Are they all profitable? What would be the impact if some were discontinued?
Is the company operating at capacity? What is the capacity?
Are margins changing? How do the margins compare with the industry?

Who are the major suppliers? Are there alternate suppliers?
Does the company have any major non-arms length relationships with customers, suppliers etc? What would be the impact on the business if those relationships ceased?

What is the customer composition? What would be the impact on the business if it lost several large customers?
How would customers react if prices were increased by 5% or 10%? How would that impact profitability?
Does the company have a sales order backlog? Is it growing, declining, etc?

Do you understand the financial information? Do you have the ability to properly interpret that information? Should you involve your financial advisors?
Are the company's books of account well maintained?
Are the owners reluctant to provide financial information? Why?
Are the accounts receivable collectable?
Does the firm have a good relationship with its bankers? Will you continue with that lender or start afresh?

How good is the inventory? Does it include old or slow moving inventory that needs to be written off?