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Business Valuation Specialists LLC

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What benefits come into play when valuing a business for sale purposes?

Posted by Business Valuation Specialists LLC on Dec 13, 2018 12:08:21 PM

valuing a business for sale purposes

When you're considering selling your company, it's hard to know how you should prepare it for that sale. Should you invest in one particular area or another to increase the return on your investment? If you make a change to one area of the business, will you positively or negatively impact the value of another aspect of your company? Are there any areas that you're really missing out on that will have a detrimental effect on your company's final sale price if you don't fix them? This is why valuing a business can be so beneficial for entrepreneurs who are getting ready for a sale. Here's a glance at the different benefits and why they're important to the sale process.

What benefits come into play when valuing a business for sale purposes?

Let's start by looking at how your company is performing. Are there specific areas in your company that need to have improved processes and practices brought into effect to improve performance? Perhaps you've got a lot of bad debt in your A/R department that can be handed to an outside collection agency. Maybe your equipment is in excellent condition, but your infrastructure needs serious improvement to protect that investment.

Next, let's consider how your company stacks up against the competition. Where are you strong and where are you weak? Competition may include companies in your region or companies that offer similar products or services to your industry. Does your business have a reputation for innovation, research and development? Maybe you offer strong customer service. Whatever it is that makes your company stand out, that helps build your business' value. But how should you develop it?

What about your industry as a whole? Does your brand stand out as a leader, building a strong market share on name alone? That brand is worth something. Is your industry growing as time rolls forward or does it lack the leadership and innovation to continue into the next era? These aspects will also impact your asking price. Are there areas where innovation within your industry will make it stronger, allowing your business to take a position of leadership, improving its value and overall market share in the industry?

It's also important to not forget about the effect of the market on your final asking price. Though knowing exactly where the market is heading is impossible, experienced appraisers have been through enough cycles and studied the financial data from enough companies to be able to make an educated guess on whether your market is heading into an upswing or a downswing. This helps give you a timeline with regards to whether you need to work quickly to get out or if you should weather the storm until things improve.

By valuing a business, you're getting a deep look into not only how your company operates and produces value, but also how it stacks up against other businesses and the industry overall. When you work with a certified business valuation specialist, you know that the information they provide is based on years of education, experience and expertise in your industry. Getting a series of valuations as you prepare your company for sale helps give you a solid guide through the process, maximizing your final asking price and profit.

Tags: valuing a business for sale purposes

Valuing a Construction Company for Transition: What You Need to Know

Posted by Business Valuation Specialists LLC on Dec 5, 2018 12:26:00 PM

valuing-a-construction-company-1

With succession planning or selling a business, you must know the value of your construction company. A business valuation can help with that. Find out what you need to know when valuing a construction company for transition purposes. 

Timing 

All too often, business owners don't think about selling their business until something catastrophic happens, such as disability or divorce. Perhaps you've heard that the worst time to go car shopping is when you need a car ASAP, such as after an auto accident. Well, the same analogy holds true for transitioning your business. The worst time to seek a valuation is when you need to sell your company immediately due to a change in circumstances. 

Savvy construction firm owners begin the process of seeking valuation up to seven years before they actively get out of their business. This extended time frame allows business owners to develop a transition plan, make changes to the company structure to boost attractiveness, and prepare the construction company for transition. 

Partnerships

Your partner in valuing a business is an appraiser who has demonstrated experience with construction companies. The right appraiser will have experience valuing other construction companies and will understand the equipment you use. Since you will be acting upon the valuation to prepare your business for transition, it's important to choose someone who communicates clearly. If you don't understand the business valuation, how can you act on it? 

To complete the transition, you will also need a business attorney and tax specialist. If you don't have an attorney or tax preparer, find partners while you are still in the planning stages of transitioning your construction company. 

Preparation 

Valuing a construction company provides a snapshot of the company's worth at a moment in time. Your appraiser will explain why the company has the value it has and how you can boost the value, which would increase profits in a sale.

Your appraiser will also explain the method used in valuing your construction company, which can help you prepare for a successful transition. While income-based methods, which include discounted cash flow and EBITDA, are traditionally used when valuing a construction company, there may be times when other methods (like an asset-based approach) are more appropriate. 

After your business valuation, identify what steps you will take to position your business for transition and increase value accordingly. Boosting business value in the years before you transition means you make more money when you cash out.  

For instance, your business may be more attractive on the open market if you are keeping your employees and assets, so a new owners can jump right in with a team of skilled laborers. You would need to determine when, what, and how often to communicate with employees regarding the transition. Clear communication reduces rumors and gossip, which can create a toxic work environment if left unchecked. 

If you've been skating by with old equipment, your business might look more attractive if you replaced legacy equipment with newer models. By budgeting for this ahead of time, you can position your business for a smooth transition while maximizing your profits. 

By preparing ahead of time for the transition, you can pave the way for the company you worked hard to build to change hands successfully. You may also be able to get a better price for your business, because you know the true value of your company and can better communicate it to others. 

Tags: valuing a construction company

Valuing a Manufacturing Company Before a Divorce: What You Need to Know

Posted by Business Valuation Specialists LLC on Nov 28, 2018 2:10:00 PM

valuing-a-manufacturing-company-1

During a divorce, the divorcing couple must split personal and professional assets. When one partner in the marriage owns a manufacturing company, the company's worth must be split during the divorce proceedings. Valuing a manufacturing company can determine the worth of the business, which helps negotiations proceed. Here's what you need to know about business valuation for divorce purposes when it comes to manufacturing facilities. 

Splitting Up Marital Assets in a Divorce

Divorce laws vary by state. Generally, divorce lawyers classify assets as belonging to one party or both parties.

If an asset was acquired before the marriage (as when someone owns the manufacturing plant before the marriage), then it's classified as separate. The caveat here is business improvements that were made using joint funds, for instance new equipment financed by a joint back account. Even with a manufacturing business that predates the marriage, the spouse may be entitled to a portion of the company's value. 

If a manufacturing company is acquired during the marriage, then it counts as shared property and must be split in the divorce agreement. In many states, property should be split 50/50 between the spouses. 

Many divorcing couples do not want to co-manage a business together. The easiest solution to this dilemma is often the least desirable one: Sell the business and split the profits from the sale of the manufacturing company among both parties.

Another common option is for one party to buy out the other party of their interest in the business, then run the manufacturing company. When the business owner wants to retain their business and buy out the spouse, they must first take a valuation of the manufacturing company to determine worth, then pay out the rightful share as part of the divorce proceedings.

Business valuation experts can value the manufacturing company to determine its worth. It's better to have an independent valuation of the manufacturing company than rely on the business owner, who is not neutral, to estimate the value. Relying on the owner to gauge the manufacturing company's worth is not recommended, as it's in the owner's best interest to undervalue the company, while it's in the spouse's best interest to overvalue the manufacturing plant. 

Valuing a Manufacturing Company for Divorce

Manufacturing companies can be valued using an asset, income, or market-based approach. An asset-based valuation calculates the worth of equipment and personnel, an income-based approach assesses present value as compared with future earnings, and a marked-based approach looks at the worth of similar manufacturing facilities recently sold. 

Asset-based valuations are common with manufacturing facilities, since these companies tend to own a lot of expensive and unique equipment; however, sometimes it's best to combine appraisal methods. An appraiser will identify the best method to use based on the company and circumstances, explain the selected method of valuing a manufacturing company, and provide documentation to support their valuation. 

Some couples choose to hire a single appraiser who can determine the business's value. Other couples opt to hire two appraisers, so each spouse can work with an appraiser of their choice. If two appraisals are conducted, the valuations can be compared by the attorneys during the divorce negotiations. 

Determining what, if any, part of a business a spouse is entitled to is a process best left to divorce lawyers. Once you determine that a business counts as shared property and must be split, identify a qualified appraiser who can value the business for divorce purposes. 

Tags: valuing a manufacturing company

Preparing for Growth: How Can a Business Evaluation Help You Grow?

Posted by Business Valuation Specialists LLC on Nov 22, 2018 2:14:00 PM

business-evaluations

As the economy continues to recover, there's real opportunity for business growth just on the horizon. But how do you get ready for that eventual growth? One way to make sure your business is in a good situation to take advantage of any opportunities that come your way is by having a business evaluation performed. Calculated by a certified business valuation specialist, this gives you some strong insights into how your company is performing, where it's doing well and where it needs some serious work to be even more successful. Here's a glance at the kind of information you can discover during an evaluation.

Preparing for Growth: How Can a Business Evaluation Help You Grow?

Many businesses only look at the value of a business valuation when they're getting ready to sell, dissolve a partnership or pass their business on to the next generation. However, a business appraisal can be a valuable tool that gives you solid insights into your business' overall performance, especially in advance of making changes to take advantage of economic growth.

A valuation starts by looking at your company's financial statements. A qualified appraiser can probably tell you whether your overhead expenses look high, whether you're carrying too much debt, if you have too many non-paying customers or whether you have assets that are losing value quickly. This information tells you where you need to make improvements to your company to improve your bottom line. By getting these poor-performing areas of your business in line, it becomes much easier to take advantage of growth when it comes your way.

But what about the better-performing parts of your business? An appraisal catches these areas as well, such as exceptional customer service, amazing research and product development, solid industry leadership or a brand that is well known for its quality and reliability. These are aspects of your business that can be leveraged and grown to improve your company's profitability and market share. This allows you to develop these areas to ensure that you're gaining everything you can from them during times of potential economic growth. 

How about the other areas of your business? How are you competing in the marketplace? The appraiser looks at these areas of your company as well, using the information available from other businesses to determine what your company is worth as a whole. When prepared by a certified business valuation specialist, this information in the form of a valuation report can be used to secure a business loan for new equipment, fight an unfair property tax assessment, change your insurance liability to only the amount you need, or even fight against a plaintiff who wants to take to to court and seems to think that your company is worth much more than it actually is.

When you have a business evaluation performed on your company, the insights that you gain allow you to make the necessary changes now before you need to worry about changes that will lead to more growth down the road. However, not every person who can come up with a value for a business can provide you with this level of insight into your company's operation. We recommend that you only work with a certified business valuation specialist to get the most value out of your investment.

Tags: business evaluation

How do I Determine the Value My Business is Worth?

Posted by Business Valuation Specialists LLC on Nov 15, 2018 11:07:00 AM

value my business

When you're trying to sell or improve your business, part of that process is being able to determine the value of that company. Though that may seem like a relatively straightforward process, most business owners still don't know the answer to the question "What is the real value my business is worth?" There are a number of different ways to develop an approximate value for your company, there are only a few ways to determine that value accurately and in a way that puts you in a position of strength for a range of different negotiation situations. Here's a quick look at different ways to value your business.

How do I Determine the Value My Business is Worth?

  • Ask for offers on your business. This is one of the worst ways to get an idea of what your company is worth, because you'll be beset by people who may be far off on both ends of the spectrum, though it's much more typical that you'll receive lowball offers at this point. This doesn't mean you can simply add on to these offers to estimate your business' true value, as there are many more factors that must be taken into account in determining your company's value.
  • Do your own research. You could look at how much similar companies have sold for in the past and estimate your company's value based on that information. However, it can lead to significant inaccuracies. What condition was the market in when that company sold? What was the value of their brand and their reputation for innovation? What about differences in the market sector that is served or the perceived value of their products and services? These factors all impact value.
  • Check with a real estate agent. A real estate agent can give you a more accurate picture of your company's value, but that value can be influenced by their interest in how quickly they want your company to sell so that they can receive their commission check. If it's been a rough month, they may lowball your business value to improve their short-term income, or if it's been a great month, they may come up with a high figure hoping for more income down the road. 
  • Have a professional appraisal performed. This is the best way to have the value of your business determined. Professional appraisers use a range of techniques that have learned that have been tested in real-world situations. This means that they're very good at determining the exact value of your business in a wide range of situations, whether you're just looking for a leg up on business growth or are preparing for a sale.

By understanding the differences between these options in determining business value, you can better answer the question "how do I value my business?" without a lot of worry about whether the value you're receiving is an accurate one or not. Remember, if you want the best quality appraisal report for your company's value, it's important that you choose to only work with a certified business valuation specialist. This type of appraisal uses a quality set of methodologies that have been tested in a wide range of real-world situations that can be used in a number of different applications.

Tags: value my business

What Kind of Skills Does a Business Appraiser Need to Have?

Posted by Business Valuation Specialists LLC on Nov 7, 2018 5:14:00 PM

When you're in a position to have a business appraisal performed on your company, have you ever thought about the vast amount of knowledge, skills and expertise that a certified business appraiser needs to have to be able to determine the value of your business? It's a very specialized skill set that is often overlooked in everyday life. Here's a quick look at the skills that are required of business valuation specialists as they go about their jobs every day.

What Kind of Skills Does a Business Appraiser Need to Have?

  • Serious attention to detail. Consider, for a moment, the complexities of your business. Now imagine having to determine all those complexities within a very short period of time! Business valuation specialists need to have a serious ability to ferret out every detail about your business that is necessary to create an accurate assessment of its value.
  • Ability to work through complex calculations. The market is up, the market is down, one business is very similar, another is very different. There are a wide range of factors that come into play when calculating an accurate business value, requiring an appraiser to have a very strong set of math skills to keep up with constant changes during the process.
  • Thirst for knowledge. Because an appraiser needs to get into the nitty-gritty details of every aspect of your business, they need to have an innate thirst for knowledge. Not only do they need to understand the value of your products, they need to understand where your company is innovative and where it needs to catch up. This requires a strong love for learning.
  • Strong research abilities. Which other businesses is your business similar to and which ones is it different than? Being able to pick out these differences and discover the fine lines that make companies unique is a definite strength when an appraiser is working on different company valuations all day.
  • Real-world communication skills. Have you ever worked with someone who just couldn't explain the process? Because business valuation specialists have to work with their clients to develop a fair value for a business, they need to have strong communication skills to get the job done right. This allows them to ask the right question for every situation that may arise.
  • Ability to adapt to changing circumstances. Is this company going out of business because of a bankruptcy or is it being sold at a premium to the perfect buyer? Because every appraisal is different, it requires the business valuation specialist to go into each situation with the ability to adapt to that particular case and apply their knowledge fairly across the board.

A business appraiser needs a diverse set of skills to be able to perform the job they do on a daily basis. It takes a lot of time and dedication to develop these skills, whether through a training program or through on-the-job experience. When you need to have your business appraised, do you want to have the business appraisal determined by someone who is simply making a guess based on their general experience, versus a professional who has taken significant time and effort to become certified and develop these skills? Working with a certified business appraisal specialist delivers real value for your company

Tags: Business Appraiser

How a Company Valuation is Different Between Business Organization Types

Posted by Business Valuation Specialists LLC on Oct 31, 2018 1:39:00 PM

How is your business organized? Many companies are aware of at least some of the benefits of organizing under each of the different business types, but did you know that there is at least a little difference between how each of these companies are organized and how they must be handled in the company valuation process? Here's a quick look at the differences between each basic business organization type and the impact it can have on your overall appraisal process.

How a Company Valuation is Different Between Business Organization Types

Sole Proprietorship

A sole proprietorship is the most basic legal organization a business can have. It can be one or multiple people acting in the interest of the business, but it's assumed that they act as one body in the interest of the company. It provides very little in terms of legal protection, so if your company were to be sued, you could also lose your home and other assets in the process. The higher level of liability must be factored into the potential for losses and any mixing of personal and business funds must be sorted out in the appraisal process.

Partnership

A partnership is more detailed than a sole proprietorship and should have some documentation laid out at the beginning of the partnership to determine who owns what amount of the company and what must be done should the partnership be dissolved. It helps avoid arguments at the end of the business by having everything in line ahead of time with regards to how to split up the profits or losses when the business closes or is sold. This process is taken into account during appraisal with each partner's share calculated from the total appraised value.

S-Corporation

Also referred to as a pass-through corporation, this type of corporation requires more paperwork to establish as a proper corporation, but also provides legal protections to the owners. However, unlike a C-corporation, an S-corporation passes earnings through to the owners, so rather than the corporation paying taxes on profits, the owners report these profits and pay the taxes on them on their personal tax returns. This can create additional growth that is factored in during an appraisal.

C-Corporation

A C-corporation is a fully incorporated entity that exists completely separate from the owners. Like the S-corporation, it requires more paperwork to incorporate, but the taxes on profits are paid by the corporation before they are distributed to the owners, at which point the owners also pay taxes. It also provides more legal protection to the owners as it stands as its own entity. This double taxation is taken into account in terms of the corporation's growth in appraisal.

Limited Liability Company

A limited liability company or LLC is a company or corporation that is specifically set up to limit the amount of liability a company or its owners may be exposed to in the course of doing business. It can be set up in any number of organization types, but is generally designed to provide protection to the owners rather than any specific tax or appraisal benefits.

By understanding the differences between business organization types, you can gain a better understanding of how each organization works and how it affects the way that you do business on a daily basis. It also provides you with opportunity to better understand the impact it can have on your company when it's time to have an appraisal performed. Make sure to work with a certified business appraiser when you have your company valuation performed to ensure you're getting the best possible information and accuracy out of your investment.

Tags: company valuation

What is the Right Method for an Appraisal of my Company?

Posted by Business Valuation Specialists LLC on Oct 24, 2018 1:49:00 PM

Only when you know your worth can you negotiate with confidence and get the price you deserve for selling the business you worked so hard to build. There are many methods of appraising a company: which is right for you? 

Different Ways of Appraising My Company 

The methods of appraising a business fall into three different buckets: income, market, and asset. Here's what those terms reflect: 

Income-based appraisal

Income-based approaches fall into two categories: Discounted cash flow and capitalization of earnings. 

In the capitalization approach, a business appraiser will look at your cash flow in recent years to gauge a company value. 

In the discounted future earnings method, an appraiser will gauge the future value of the company based on its present financial state. Appraisers often use this method when the company's cash flow is unsteady, say when a company had a lean year but otherwise has enjoyed a solid track record. 

Asset-based appraisal 

Asset-based appraisal methods evaluate the company's assets versus their liabilities. An appraiser will value the assets using a fair market approach, then subtract the liabilities from the total of the assets for a business valuation. Company assets include commercial real estate and land owned by your business. 

This method works well when the company has a lot of physical assets, for instance when valuing a farm. Asset-based appraisals also work well with companies that are losing value, since the value of the assets is more or less fixed.

In a down market where there may be a glut of resources on the market, an asset-based appraisal may undervalue the company's true worth because the equipment values are lower than typical due to supply and demand. 

Market-based appraisal 

In a market-based valuation, an appraiser will research recent business deals in your niche and geographic area. By understanding how much another dental clinic sold for, the appraiser can estimate the asking price point for your dental business. 

The market-based valuation is accurate and highly useful, since no one can argue with financial data. However, this approach only makes sense when there are recent deals among companies in a similar line of business, similar area, and similar size.

Additionally, market-based approaches do not work as well for sole proprietor companies, where it's much harder to compare like with like because the business owner's relationship with clients influences the value of the company. 

Getting an Appraisal of My Company: Which Method is Right for Me? 

Once you have an understanding of the different ways of completing a business valuation, you are naturally asking yourself which method is right for your business. 

There is no one size fits all answer to the question, since there are so many variables. A skilled appraiser will interview you to learn more about your company, then suggest one or more appraisal methods that will tell an accurate story of your company's value. 

While each method has its pros and cons, all of these valuation methods can provide invaluable data before you put your company up for sale. Too many business owners overvalue their company due to emotional factors like pride in the business they worked to build. Setting a company value too high sabotages sale, as it drives away potential buyers and leaves you on the hook until you get willing to bargain. 

If you're serious about selling your business and commanding what it's really worth, seek out a business appraiser who has experience valuing companies in your area and industry. 

Tags: appraisal of my company

What goes on behind the scenes at business valuation companies?

Posted by Business Valuation Specialists LLC on Oct 17, 2018 11:40:00 AM

Having a company appraisal performed can seem like a simple task, but it's actually much more complex than it first appears. Though you may see the beginning and end result, you're probably not aware of the many tasks that take place in the middle to ensure that you're going to get the most accurate, reliable business appraisal that you can possibly expect. But what exactly takes place behind the scenes and how does it impact the final valuation report that you receive from your appraiser? Here's a quick look at the process from beginning to end to help get you started.

What goes on behind the scenes at business valuation companies?

  • Intake: However you get to the particular business appraisal firm that you're now speaking to, it's of vital importance that you're routed to the correct appraisal specialist. You may be asked several questions about your company's business, its size and the reason you're getting the appraisal performed. This all happens to ensure that you're sent to the appraiser with the best experience and track record for your specific needs. A quality business valuation firm will have experience in the trenches, not just determining value by the book.
  • Initial Information Gathering: Though you'll have answered some questions, there are probably many more waiting to be asked. Why? The type of appraisal you receive is, in some cases, dictated by law. This is to ensure that in some high-stress situations, everyone is treated fairly. The appraiser will also ask about your competitors, your position in the market as you see it and the overall market conditions to get an idea of how you view these factors that can impact your company's value. A solid look at your finances will probably take place at this time.
  • Research: Next, the appraiser goes into independent research mode. They take the time to look at your industry, the market, your company's specific strengths and weaknesses, its reputation in the community and industry, how it fares against competitors in a completely sterile setting and how it's doing in the market as a whole. This may also include a site visit where the appraiser takes a good, solid look around your entire business, finding areas where it's performing well compared to the competition and areas where it may need improvement.
  • Report Preparation: The valuation specialist will now take a significant amount of time to calculate the company valuation and prepare a well-researched appraisal report that follows standardized methodologies to develop a final value for your company, This will include a wide range of information to ensure its accuracy. At this time, the appraiser may have another valuation specialist take a look at the report to ensure accuracy and will work with you on any concerns you have about inaccurate values included in the report.

When you have a solid grasp of not only what happens during a business appraisal but also what happens behind the scenes at business valuation companies, you walk away with a much more solid grasp of how those companies work and what to expect from the process. This makes it much easier for you to appreciate the work that goes on to provide you with a solid valuation report on your business and the level of accuracy and integrity that you should come to expect.

Tags: Business Valuation

How to Prepare for an Acquisition With a Business Appraisal

Posted by Business Valuation Specialists LLC on Oct 10, 2018 6:34:00 PM

Valuation is essential in an acquisition, no matter which side of the deal you find yourself on. Learn how to prepare for an acquisition and the role of a business appraisal in determining company valuation. 

Organize Your Business Documents 

The acquisition process is lengthy, but it will go smoother if your financials, taxes, and other business documents are in order. Take care of any outstanding issues before you put your company up for sale, pay taxes, and sort through all documentation that tells your company's story. This will make you look more attractive to potential buyers and streamline the acquisition process. Getting organized also helps you prepare for an appraisal, which will determine the valuation of your company. 

Find Trusted Partners

You can't go through an acquisition alone, so before you seek buyers, find trusted partners to help you through the process. Look for an attorney, a certified appraiser, a tax adviser, and an investment banker or other financial professional. These partners can help you manage your expectations going into the acquisition and position your business for a successful sale. 

Do Your Market Research 

While your trusted partners can help you understand the market, many entrepreneurs like to do their own research to best understand the strengths, opportunities, weaknesses, and threats around the acquisition.

Review recent business deals in your industry to track trends. Look for companies in your industry that might be acquiring smaller players, then consider which ones are a good match for you. Ask yourself questions like "Which companies share my values?" or "Who understands my competitive advantages?" 

This helps you understand the acquisition landscape, communicate your value in meetings, and have a position of power in the negotiation. 

Get a Business Appraisal 

You may not think of an appraisal when considering how to prepare for an acquisition, but it is a necessary step. An appraisal calculates your company's worth within the market -- say, compared to similar businesses in your industry and market. 

As an entrepreneur, you are hardly objective in calculating your company's value. You are emotionally attached. Third-party certification of your business value helps you screen offers, so you know when a potential buyer is underbidding and when they are making a fair offer for the company you worked hard to build. 

Review the appraisal carefully and ask questions about the valuation. When you understand why your company was valued at a certain price and what factors affect its value, you will be a stronger negotiator.

Get Stakeholders on Board

While you may be ready to sell, not all stakeholders will understand the decision. The process will run smoother if you communicate clearly to management, board members, and other stakeholders. Your personnel, clients, and relationships are part of your value as a business, as any good appraiser will note. By retaining these partnerships going into the sale, you can keep your company valuation high and avoid infighting that could sabotage the deal at the last minute. 

The research, business appraisal, and opinion of professional advisers will help you explain your decision making and get key stakeholders on board before you pursue an acquisition. This is critical to the success of the deal, because your business looks better when everyone is on board than when there is a lack of clarity or transparency. 

By taking these steps before the acquisition, you can understand the position of your company, navigate every step of the acquisition phase with confidence, and come through the process with ease. 

Tags: how to prepare for an acquisition