Buying or selling an existing business is a great way to jump into the business world or expand your investment footprint. And if you get it right, acquiring an already established business can give you the head start you’d otherwise not get if you were to start from scratch and grow organically.
But mergers and acquisitions (commonly known as M&A) are never a walk in the park. In the excitement of the anticipated prospects, it is not uncommon for the parties involved to make costly mistakes that can hurt them down the road. Here are three mistakes you need to avoid during the M&A exercise.
Overlooking due diligence
You’ve probably heard the adage, “all that glitters is not gold.” A business may seem successful on the surface only to have underlying issues. Before initiating the M&A process, you need to get an overall picture of what you are getting into. What are the asset and customer bases? What are the liabilities? Does it pay its taxes on time? It’s crucial that you ask these questions before finalizing the deal.
Failing to protect intellectual property
It’s easy to assume that the other party has properly documented and safeguarded their IP. However, this can be a costly mistake. Acquiring a company that has defective IP protection can create a variety of problems down the road, including personal problems.
Overlooking the true cost of synergies
Synergies are basically the potential financial benefits you are likely to realize following the merger or acquisition. These may be realized through various variables like cost reduction, revenue enhancement and combined technology or workforce. It’s important that you have a full understanding of the benefits you hope to realize following the M&A exercise.
Protecting your interests
Merging two businesses can be both cumbersome and time-consuming. Learning more about Nevada business formation laws can help you avoid pitfalls that can hurt the exercise.