5 Questions to Ask Before Acquiring a Business What's your readiness score?

By Jeffrey Concepcion Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

As the economy continues to progress, and capital remains readily available, it may make sense to consider a merger or an acquisition as part of your growth strategy. Entertaining this thought provokes a mixture of excitement, but before you sign on the dotted line, you should consider a number of factors. Here are five questions to keep in mind when contemplating an acquisition.

Related: U.S. Dealmaking at Record Year-to-Date High

1. Readiness -- is our foundation sound enough?

Many companies fall in love with the idea of a merger or an acquisition because there is so much promise, but they end up failing within a few years because they move too quickly or lack the infrastructure to support it. If a deal under-performs, or the industry falls out of favor, will your business have the resources and staying power to weather the storm?

Look inward first and perform internal stress tests to gauge the readiness of your company for this type of transaction. Along with the time, energy and capital you'll need to ensure a successful engagement, you'll need to ensure that your house is in order.

A major challenge facing the financial services industry today is the aging workforce. According to Financial Advisor magazine, approximately 43 percent of financial advisors are over the age of 55, and there doesn't yet exist a steady crop of younger advisors with enough experience to replace their battle-tested, soon-to-retire counterparts.

This gap in experience may lead to hastily executed mergers, and financial advisory firms may lose clients because their up-and-coming advisors aren't capable of maintaining the same level of service and advice.

2. Do the core values, culture and fit align with our company?

Chemistry with the executive team and staff is crucial to the completion of a successful deal. Taking a "holistic" approach when it comes to studying the company will have short-term and long-term benefits. Such an approach generally requires extensive communication and face-to-face meetings, not only with the seller, but key personnel as well.

These conversations help the buyer understand the prospective company's culture, confirm a philosophical alignment and make for a smooth transition. Acquirers often focus too much on the mathematics of an acquisition and too little on people and culture.

Related: Don't Even Think About M&A Until You've Mastered These 5 Practices

3. Are there key employees who may be responsible for major contributions to the company's success after the acquisition?

Approximately $11 billion is lost annually by companies due to employee turnover, and 75 percent of people who quit their jobs cite their bosses as the reason, research reports. So, gaining the trust of existing staff goes a long way toward helping you reduce your risk of losing key people.

Being clear and intentional about your commitment to key employees and your recognition of their contributions is especially important. Ideally, this should take place early on in the process and well before the transaction is completed. Transparency is essential, and there should be willingness to work with these key personnel on employment contracts, retention bonuses, etc. because they will be invaluable not only during the transition phase but as key drivers of future growth.

4. What level of due diligence should we perform?

Review the company's portfolio and performance history to verify its stand-alone value and reveal red flags that might become problematic in the future. When evaluating the numbers, be sure to figure out what it will take to achieve economies of scale, and identify where the elimination of redundancies will add to your bottom line.

Common items to investigate include current assets and liabilities, employment contracts, vendor contracts, bonus benefit and equity arrangements, equipment leases and credit reports. Additional items for consideration should include compliance records and demographics surrounding the business that might affect the viability of the acquisition.

5. Will the acquisition better position our business for the future?

The objective of any acquisition is to create inorganic growth and help secure a competitive advantage in the marketplace. Benefits associated with scale and efficiency may also help to increase margin. Beyond these obvious items are the following considerations:

  • Will this transaction create access to new markets?
  • Does this acquisition offer access to new technology or new lines of business?
  • Will we gain intellectual capital to advance our enterprise?

Evaluating key areas like these should remain top of mind from a strategic standpoint throughout the decision-making process. Change is difficult, and acquisitions have the potential to make or break your business. These questions should give you a good start for evaluating the exciting world of acquisitions.

Related: Is Yahoo Buying Foursquare? Rumors Continue to Swirl.

Jeffrey Concepcion

President and CEO, Stratos Wealth Partners

Jeff Concepcion, president and CEO of Stratos Wealth Partners, has more than 30 years of experience in the financial services industry. He started Stratos in 2008 on his own during the Great Recession, and it now has more than 180 financial advisors in 22 states across the country.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

This Couple Started a Side Hustle to Improve a 'Terribly Made' Bathroom Essential. Now the Business Earns More Than $3 Million a Year.

Michael Fine and Lisa Schulner-Fine launched lifestyle brand Quiet Town in 2016 and have been growing it ever since.

Leadership

Lead From the Top: 5 Core Responsibilities of a CEO

Knowing exactly what the chief executive's role entails is critical for steering a company to success.

Marketing

If You're Using ChatGPT This Way as a Marketer, You're Missing Out on Its Full Potential. Here's How to Maximize Your Results.

The real value of AI isn't in what you ask — it's in how you shape the conversation. Mastering prompt interactions means better content, sharper thinking and fewer generic outputs.

Marketing

Why Micro-Influencers Are Winning the Trust Game in Marketing

Here's how micro-influencers are driving authentic brand engagement and redefining trust in digital marketing.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Business News

Indie Bookstore Goes Viral After Hundreds of Customers Line Up to Help Move Its Inventory to a New Location — One Book at a Time: 'Book Brigade'

Serendipity Books is holding its grand opening event on April 26 to coincide with Independent Bookstore Day.