Acquiring an established venture
Acquiring an established venture represents less risk than starting a new business as it comes with an existing customer base and revenue stream. However, buying a business is a complex process that requires thoroughly evaluating key business documents like financial records, contracts, and licenses. It is important to understand the target industry and markets before acquiring a venture to ensure it is a good strategic fit. While an established business provides advantages like immediate cash flow and existing assets, there are also potential disadvantages like needing upgrades or declining industry conditions that require investment. A comprehensive due diligence that examines financials, assets, contracts and the seller's claims is essential to evaluate an acquisition target.
Acquiring an established venture
- 1. Acquiring an Established Venture Prepared By: Nijaz N
- 2. Acquiring an Established Venture • Represents less of a gamble (risk) than starting a new business. • Established business comes with an existing customer base & you can start trading straight away. • But buying a business is complex & time consuming process. • Need to check: – Business records – Plans & Operations – Familiarize yourself with your competitors & industry – Check Licenses, Permits & Registrations (Which of above mentioned are transferable)
- 3. Acquiring an Established Venture • Before Acquiring an Established Venture understand: 1. Which markets to enter. 2. When to enter & on what scale. 3. Which entry mode to use.
- 4. Advantages of Acquiring an Established Venture • Buying a business is generally considered less risky. • The difficult start-up work has already been done. The business should have plans and procedures in place. • Buying an established business means immediate cash flow. • The business will have a financial history, which gives you an idea of what to expect and can make it easier to secure loans and attract investors. • You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and stock. • A market for your product or service is already established. • Existing employees and managers will have experience they can share.
- 5. Disadvantages of Acquiring an Established Venture • The business might need major improvements to old plant and equipment. • You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants. • The business may be poorly located or badly managed, with low staff morale. • External factors, such as increasing competition or a declining industry, can affect future growth. • Under-performing businesses can require a lot of investment to make them profitable.
- 6. Evaluating an Established Venture 1. Income statements 2. Records of accounts receivable and payable 3. Balance sheets and tax returns including business activity statements (last 3-5 years) 4. Profit and loss records (last 2-3 years) 5. Cash deposit records 6. Bank loans and lines or letters of credit 7. Minutes of director's meetings/management meetings
- 7. Evaluating an Established Venture 8. the seller's claims about their business (e.g. their reasons for selling, the business's reputation) 9. privacy details (e.g. of employees, trading partners, customers) 10. stock 11. details about plant, equipment, fixtures, vehicles (are they in good working order and licensed?) 12. intellectual assets of the business (e.g. intellectual property, trademarks, patents) 13. existing contracts with clients/staff 14. partnership agreement 15. lease arrangements