Each decision you make to commit resources \u2013 your money or your use of corporate or personal time – affects the future value of your business.<\/p>\n
Minor decisions, such as replacing employees who have left the company or replacing ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2018\/09\/Time-to-sell.jpg\")
equipment needing updating, are usually considered operational in nature, and unless the business is changing direction, not relevant to this test.\u00a0 But each commitment of resources of any substantial size for acquisition of new products, talent, even new companies, changes the value of your enterprise perhaps to a great degree.<\/p>\n
Should I make an acquisition to increase value?<\/strong><\/p>\n Let\u2019s analyze the effect of a potential acquisition upon the value of your company.\u00a0 We assume that you intend to sell the enterprise at some point in the future.\u00a0 Let\u2019s list some of the many reasons your company might find to make an acquisition. \u00a0New products, new geographic territories, elimination of a competitor, increase in revenues, consolidation savings, new talent, new distribution channels, and more are good reasons for a start.<\/p>\n Odds that an acquisition will be a success<\/strong><\/p>\n The alternative uses of your time and money<\/strong><\/p>\n If the answer is \u201cno\u201d to the question above, and there are other opportunities for the use of cash that would add value, it would be wise to allocate resources to those opportunities.<\/p>\n [Email readers, continue here…]\u00a0<\/em><\/span> Many companies find acquisitions to be a decision of \u201cmake or buy.\u201d If the price of an acquisition is so high as to make the risk of creating the product or service yourself more attractive, that alternative must be discussed with your board. Remember to consider the cost of lost time if starting from scratch, and of patent or other branding considerations that would challenge a \u201cmake\u201d decision.<\/p>\n After all, we are in business usually for the ultimate return we will someday receive from our investment. \u00a0If we are skillful in growing our business, the return from its sale will greatly exceed the total amount you will have earned from operations during the period of growth.<\/p>\n","protected":false},"excerpt":{"rendered":" Each decision you make to commit resources \u2013 your money or your use of corporate or personal time – affects the future value of your business. Minor decisions, such as replacing employees who have left the company or replacing equipment … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2018\/09\/Business-sale.png\")
Given these possible goals in making a good acquisition, there is one overarching question that you should consider before making that decision to acquire a company.\u00a0 Know first that statistically, 80% of all acquisitions do not meet the intended objectives of the acquirer, making most all acquisitions risky.\u00a0 The question to study in your board meeting long before making any offer to purchase a candidate business is: \u201cWould this acquisition add significantly to our enterprise value\u00a0 and attractiveness in an eventual sale?\u201d<\/p>\n