What Your Small Business Needs to Know Buying and Selling Businesses

While there are plenty of reasons small businesses look into buying and selling businesses and/or assets (including growth, diversification, access to new markets, acquiring talent and IP, and operational synergies), the basic mechanics of a transaction are fairly similar. M&A for small businesses can be a complex process, but here’s a basic outline of what to expect in the process:

1. Objective Setting: Determine why you want to pursue an M&A. It could be for growth, diversifying product lines, or entering a new market, among other reasons.
2. Identification: Identify potential targets (for acquisition) or partners (for a merger). This can be done through market research, business brokers, or industry contacts.
3. Due Diligence: Once a target or partner is identified, conduct a thorough investigation. This includes examining financials, operations, legal aspects, and other essential facets of the business.
4. Valuation: Determine the value of the business in question. Several methods can be used, like the discounted cash flow (DCF), comparables method, asset-based approach, and/or sum-of-the-parts.
5. Financing: Decide how the deal will be financed. This could be through cash, stock, debt, or a combination of these.
6. Negotiation: Parties discuss the terms of the deal, including price, structure, and other conditions. This often involves back-and-forth until both sides reach an agreement.
7. Letter of Intent (LOI): A non-binding document that outlines the main points of the deal. This provides a roadmap for the formal agreement.
8. Formal Agreement: Once terms are settled, a definitive purchase or merger agreement is drafted and signed by both parties.
9. Integration: After the deal closes, the process of integrating the two businesses begins. This includes combining operations, cultures, and systems.
10. Post-merger Review: After a set period, it’s advisable to review the merger’s success or the acquisition’s value-add to ensure objectives are being met.

Throughout the M&A process, it’s crucial for small businesses to involve experts such as M&A advisors, accountants, and lawyers to ensure a smooth and compliant process.

*All information on this website or in the workshops is for educational purposes only and the information provided is general in nature. None of the information published on this website or used in the workshops are to be taken as specific legal advice. Use of this website or participation in a workshop does not create an attorney client relationship between you and the Escamilla Law Office. For legal advice, contact a licensed attorney in your state.