THE BLOG
05/31/2016 10:35 am ET Updated Dec 06, 2017

12 Ways to Proceed With Caution During an Acquisition

If you're in the position to acquire another company, congratulations. But with all big moves, navigation can be tricky. Here are the steps to ensure the process goes as you expect.

A. See if the Code Is Quality

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If you're purchasing software, you should have an experienced software consultant take a look at the code base to make sure it's quality and won't have scalability issues. Just because something is working now, doesn't mean issues won't arise after you've purchased it. The code should have proper annotations, a clean structure and an ability to scale. - Andy Karuza, FenSens

A. Know Your Motivating Factors

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Why do you want to buy this company? Growth via acquisition is often to gain access to a book of business, knock out a competitor, or take advantage of a proprietary product. Make sure that there aren't any other access points to gain the same market advantage before you invest. - Nicole Munoz, Start Ranking Now

A. Have the Right Systems and Personnel in Place

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Acquisition is a common way to expand your company's offerings, whether it's on a product and service level or a content and influence level. But growth always requires a strategy. You won't be able to properly leverage your new entity without first thinking about how to ensure a smooth transition. You need the right people and systems in place to make it work. - Ismael Wrixen, FE International

A. Check for Self-Sufficiency

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If you're acquiring another company, an essential element to review is the self-sufficiency of the business. Can this business run without you or without affecting your current operation? Also, how healthy is the existing team in this company? The last thing you want is to be in a situation where you have to dedicate so much time to run or fix this company. - Duran Inci, Optimum7

A. No Matter the Size of the Deal, Get a Signed Letter of Intent (LOI) Immediately

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I've had the distinct "pleasure" of not bothering to get an LOI signed due to the fact that the actual transaction cost was low enough that I didn't want the lawyer fees to be disproportionately large. In the end, it came back to haunt me, as the deal fell apart after months of hard work. Don't make the same rookie move. It's easy to avoid and will save you from potential heartache. - Dario Meli, Quietly

A. Interview Their Customers

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The numbers might look good, and the team might feel like a great fit, but the most important thing you need to confirm is if the business is viable in the future too. The best way to validate that the revenue is "good" revenue is by talking to customers. If they rave about the business and plan to continue their patronage, that's great. If they plan to shop elsewhere, buyer beware! - Aaron Schwartz, ModifyWatches.com

A. Hire an Attorney

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When looking to acquire another company, I've found it most beneficial to include my attorney in every step of the process. While you and your team may be business savvy, you'll need someone to review all documents to make sure the acquisition is worth pursuing. Hiring an attorney may be costly at first, but it will save you time and money in the long run. - Anthony Pezzotti, Knowzo.com

A. Make Sure Building Isn't the Better Option

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What's the primary driver for this acquisition--customers, revenue, technology? For the amount you're willing to spend, is it clear that it's a better investment to buy rather than to build? That's what it comes down to. If it's close, choose not to buy, because you're inevitably going to have integration costs you're not yet accounting for. Only do it if it's a home run. - Fan Bi, Blank Label

A. Find a Mentor

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There are many aspects and considerations when you decide to acquire another company. Find a mentor who has acquired a business in the past. They can help you navigate the ups and downs of acquiring another company. The ultimate decision will still rest with you, but having a mentor is probably the easiest shortcut to reduce costly mistakes. - Mark Daoust, Quiet Light Brokerage, Inc.

A. See if the Process can Survive a Six-Month Distraction

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As an architect of several acquisitions, I always assume that the company integration (technology, workforce, systems, data, etc.) will take about six months of work. This is especially true of technology acquisitions. Ask yourself whether your business can sustain such a long detour and that the outcome accelerates your long-term goals even if it hinders your short-term velocity. - Trevor Sumner, LocalVox

A. Look at the Company's Books With Scrutiny

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I've had the pleasure/displeasure of buying and selling several small businesses, and pouring hundreds of potential deals. People hide things all the time, and like a seemingly impressive resume, financials are often embellished to show the company in the best light. A warning about client base: typically 20-30 percent use the sale as an opportunity to leave or look around, so be ready for some outflow in the beginning. - Andre Chandra, I Print N Mail

A. Take Your Time

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Make sure when analyzing a company for acquisition that you do due diligence. That not only includes the financial side, but also the people, process and products. What good is acquiring a company for its people if they end up being disgruntled and leaving? Take your time, and have all of your bases covered before pulling the trigger. - Charles Moscoe, SkinCare.net

These answers are provided by the Young Entrepreneur Council (YEC), an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.