An alternative is acquisitive growth of course and this strategy can often remove many of the headaches sometimes encountered with the organic model, however, it is not without its own pitfalls, here are some issues to consider:

What is this business worth? What is being offered for sale? (shares or the trade and assets), Or How am I funding it? These are vital issues which, along with the “deal fever” tends to dominate proceedings but much has been written on these ‘hard issue’ factors and many theories expounded, but it’s important not to overlook “softer issues”, such as:

1. Why am I doing it? Obvious answers are, to help the business grow, to secure a market position. But sometimes it’s about personal empire building and sometimes it can be about the simple excitement of doing a deal. Such motivations do not necessarily coincide with the best interests of the business.

2. What am I buying? Do you really know what the acquisition target does? There are numerous instances of new owners getting an unpleasant shock two or three weeks into the post acquisition phase when they realise how little they actually knew pre-deal.

3. Are the cultures of the businesses compatible? If not they will struggle to integrate. Culture is embedded in the people of a business. If the people can’t work together, or simply do not get on, then the whole basis of the acquisition will be undermined.

It’s worth remembering the saying “Failure to Prepare, Prepare to Fail” when looking to buy a business as mistakes can be costly and potentially disastrous - this is where due diligence comes in and this can take many forms, the more prominent ones being:

1. Finances - financial due diligence is one of the most critical investigations and a failure to properly examine the target company’s books and records could result in you taking on a significant financial liability. Financial due diligence should normally include an analysis of the target’s profitability and cash flows (both present and projected), its accounting methods, its tax affairs and a review of the balance sheet.

2. Commercial - whilst the financial issues may have been accounted for, there are still many pitfalls if you ignore the commercial risks. You should review your target’s markets, its competition and its supplier and customer base.

3. Management & Staff - you should review key employees' skills, experience, wages and salaries, payroll procedures, and other relevant human resources issues such as over-dependency on key staff.

4. Property/equipment - you should review all appropriate leases and/or deeds and conduct appraisals for all equipment and assets.
Conducting proper due diligence will help you mitigate potential problems such as:

- Misunderstandings as to the type and condition of the business being bought
- Poor financial situation
- Pending lawsuits
- Contingent liabilities
- Declining markets or over-reliance on suppliers/customers
- Poor management
- Poor state of assets or onerous lease terms

Good due diligence can often enable a better price for the target company to be negotiated. In our experience, over a quarter of deals on which we have performed due diligence are renegotiated (and in some cases aborted) following the due diligence process.

Good luck, I look forward to hearing/watching how you move forward. Please contact me if you have any concerns or questions regarding the above.

Steve.