Business Valuation Blog | Understanding Buying / Selling a Company

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