You can grow your business by buying or merging with a smaller business. The process is similar to starting a new business, but you need to take extra steps to protect your existing business.
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Differences between mergers and acquisitions
Mergers and acquisitions are similar but have a few major differences.
Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it’s rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs.
Unlike mergers, acquisitions do not result in the formation of a new company. Instead, the purchased company gets fully absorbed by the acquiring company. Sometimes this means the acquired company gets liquidated. Acquiring a business is similar tobuying an existing business or franchise.
Calculate how much the other business is worth
Conduct a business valuation to determine the value of the other business before you agree to a sale. This is essentially the same process you’d go through to figure out how much your own business is worth beforeclosing or selling your business.
There are several ways to value a business, so do extensive research on methods if you choose to do it on your own. You might want to hire aqualified business appraiser. Once you know how much the other business is worth, you’ll know whether you can afford it outright or if you need toget more funding.
Make a merger or acquisition agreement
You must prepare a sales agreement to move forward with the sale or merger. This document allows for the purchase of assets or stock of a corporation. An attorney should review it to make sure it’s accurate and comprehensive.
List all inventory in the sale along with names of the businesses and owners. Fill in the relevant background details. Determine how the business will be run prior to close and the level of access each company will have to financial information. Note all adjustments, broker fees, and any other aspects relevant to the terms of agreement.
Don’t leave out any assets and liabilities, or this can create problems even after the sale has been finalized.
Transfer business ownership
The terms of your agreement will dictate which steps you must take to transfer ownership, and what that ownership will look like. It’s widely recommended to have an attorney help with this step.
After you’ve completed the acquisition or merger, you’ll need toregister these changes with the state, depending on state law andbusiness structure.
If the merger requires you to dissolve your original company and create a new one, you might also need toopen new business bank accounts, get newstate and federal tax IDs, re-apply forlicenses and permits, and take steps tolegally close your old business.
