With the events of the past week and whispers of world war, it’s pretty easy to get caught up in the non-stop fear cycle. Watching a full-scale invasion of Ukraine, anxiously waiting to see if China will invade Taiwan, hearing Turkey issue threats to Russia if they invade the Black Sea… well, it’s more than enough to get everyone on edge.
So, if I can be so bold here, I want to encourage you at all costs to keep your mind clear of all of this. Of course, you can stay informed — but make sure you take a break from the anxiety-inducing news coverage and get off the triggering social media scroll.
Instead, focus your energy on your San Luis Obispo business and what YOU can do to lead well at this moment. With all the doomsday voices out there, take this opportunity to be a voice of hope and reason.
Now, because we’re so very busy over here at Burkart & Stevens, CPAs and Advisors, we’ve been able to stay out of the fray (mostly). We are diving full throttle into tax season and taking on more appointments. If you haven’t grabbed a time on the calendar yet, you’ll want to do it very soon:
Also, we’d love it if you could carve out a little time to leave us a review on Google.
Make us smile with a review on Google
Reviews really help our business visibility and help others like you see what we can do for them. Thank you in advance for taking some time to do this.
So, today, I thought I might assist in the task of getting our minds away from war … so, let’s talk about mergers and acquisitions, shall we?
Stevens’s Tips for Successful Mergers and Acquisitions
“One of life’s most painful moments comes when we must admit that we didn’t do our homework.” – Merlin Olsen
Big mergers and acquisitions (M&As) are back in the headlines. Frontier and Spirit airlines plan to get hitched, for instance, and exercise equipment giant Peloton was supposed to be for sale but probably isn’t – for now…
And we all know mergers that famously fizzled in the past: eBay and Skype, AOL and Time Warner, Daimler and Chrysler. Fingers galore pointed afterward but behind the scenes in all these mega-busts was, most likely, somebody just not doing their homework.
Sooner or later your small San Luis Obispo business thinks about buying somebody else (or being bought). How far that idea goes often depends on what one company finds out about the other. Due diligence is finding out all you can about something you want to buy, the same way you’d research a car or a refrigerator before you put down your money.
There’s a lot to look at with mergers and acquisitions – and a lot of questions to ask.
Checking the boxes
It’s only common sense that the time to find a trouble spot is before anyone (especially you) puts pen to paper. Proper due diligence into another company means you dig into issues from profits and assets to tax risks and legal troubles. It puts facts and figures to all those claims that one side or the other might have claimed during all the merry dealmaking; it can turn up details that poke holes in some of those claims, too.
A piece of paper you should be most concerned about as early as possible in the deal is your due diligence checklist covering three areas: financials, legal, and operations.
(This is only a starter list – the needed documents can vary case to case and company by company … check with us if you have any questions).
Financials: The company’s balance sheets; A/P and A/R; income and cash flow statements; last three years’ tax returns; credit reports; product value reports; data on gross profit margins; fixed and variable expenses; audit and revenue reports; lists of physical assets; and debt information.
You also need a list of past performance projections – and actual results – and assumptions that were used to make those projections, as well as a history of pricing. If the company has them, a list of current investors and shareholders.
Legal: All contracts, including leases; P/Os; purchase and distribution agreements; sales contracts; employee and contractor agreements; trademarks, copyrights, and patents; articles of incorporation; and business registration documents.
In operations, you’ll do more interpreting of data that the seller provides. Take customers, for instance: Look at the numbers of repeat customers, the peak buying times, and the most popular products. What are the customers’ demographics and what have they said about the business? How has the business been marketed, and how’s the marketing ROI?
Get a list of all of the company’s products and their development history, costs to create, selling price, planned enhancements, profit margins, and growth rates.
What about the people in this company? Investigate that, too, starting with an organizational chart and list of current employees, including their positions, earnings, skills, and qualifications. How do the wages stack up against industry standards? What are the benefits plans and perks? A huge factor in this labor market: What are the projected staffing needs?
Outside of the company, who are the competitors (maybe you were one yourself…)? Who are the lenders and suppliers – find them and ask them what they thought of the business. If you’re new to the industry of the business, research it. Is it growing?
Has this company been acquired before? Why is the owner selling, anyway? (You probably already asked this of the owner themselves – do others back up that answer?)
Good rule: Think about the questions that might make you uncomfortable if someone asked them about your company.
Accept no substitutes
All through the mergers and acquisitions process you’ll want written guarantees of confidentiality. No one (least of all you) wants to bear responsibility for a company’s trade secrets or internal information discovered through due diligence.
There’s no such thing in due diligence as a stupid question – and definitely no substitute for doing your homework with mergers and acquisitions.
When it comes to being a trusted San Luis Obispo advisor, we’d be happy to give you feedback and help you examine the details of merging with or acquiring a new business – a second set of eyes, so to speak. Reach out if you want some help… or if you’re ready to book your tax appointment:
And again, if you can spare some time, would you leave us a review: Make us smile with a review on Google? Thanks in advance.
Here’s to staying out of the frantic fear swirl and staying focused on your San Luis Obispo business.
We’re here for you,
Burkart & Stevens, CPAs and Advisors