You have identified a company that meets your search criteria: it is a target to analyze! You must now decide on the advantages and risks of this recovery by carrying out its diagnosis. It is a long-term job because it is rare that the transferor has prepared a detailed file. And even if it does, you will only save time on finding information. For obvious reasons, you cannot be satisfied with the vision of the transferor!
What to analyze All! First, the external environment: the business sector, the company’s markets in order to better understand the environment in which it operates. Then, the internal environment: the strategy in place, financial health, legal and fiscal structure, means of production, human resources, etc.
Why do you have to perform this diagnosis? Firstly, to get to know the company and its environment better. To clearly identify the opportunities and threats arising from the business environment as well as its own strengths and weaknesses. To be able to validate the match between the company to be taken over and your personal project. To have a first perception of the actions to be implemented to improve the performance of the activity. To challenge the economic model and, possibly, to make it evolve. To set up your negotiation pitch.
Do not lose sight of your entrepreneurial project! Remember that the business you are buying is just the way to reach your goal. You are a skipper! You will have to face new seas to reach your destination. So knowing that the boat you will be piloting has already won such and such a race in such and such condition is a good place to start. But, the real question is whether he will be able to win the next race which will be played under totally different conditions and with completely different competitors.
In this article, we will see what diagnostics are used for and will go through them one by one.
Before Getting Into The Diagnostics
Understand in a few words: the presentation of the takeover project. You are about to enter the process of studying an identified target business to take it over! Yes, but what, how, and under what conditions are you going to buy?
At this stage, you have the first information about the company. In principle, you are in possession of the presentation file including the last 3 balance sheets and income statements, the main characteristics of the business, the sale price etc.
Beyond the preliminary analyzes, this information makes it possible to lay the first foundations of the conditions for the recovery.
Considering what the current leader is relinquishing and what you are going to acquire, many forms of a buyout may be possible. They will result in the choice of a specific financial package and an adequate legal structure.
This part will be over when you will have presented, a priori, the possible conditions for the recovery.
On the basis of the presentation file of the target company, your takeover strategy can be drawn around two axes:
- Legal: What is the nature of the purchase? Is it the purchase of a fund? Or a total, partial, progressive buyout of company securities? What are the consequences? Is the creation of a holding company possible? Will the redemption be alone or with partners? What will then be the distribution of capital? What will be the consequences for your future social status? When does the transfer seem possible? Does the transferor offer a period of support? How long will this transitional period be? What about the status and the remuneration of the transferor Over this period?
- Financial: Is the advertisement price consistent with the nature and amount of the planned contributions? Is it far from the evaluation price? Is the use of a seller’s credit possible? Will a capital increase be necessary? Beyond the transaction price, do you still have sufficient financial means to implement your development plans? etc.
Do not hesitate to seek advice and to be supported in your choices because they will have consequences on the future mode of management of the company, on taxation, your social status and possibly your assets.
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Understand In A Few Words: The Presentation Of Your Target
You have identified a potential target and you are ready to go further in the process! … Yes, but why did you select this target rather than another?
What are the decisive points that make it possible to affirm that the identified target corresponds to you and meets the requirements of your entrepreneurial project and your selection criteria?
Keep in mind that this consistency between you and the target company is a fundamental criterion… for you, of course! But also for your partners. Before even opening your business plan, studying your figures, your market research, etc., everyone asks the same question: “Is this the right person to carry this project?” Will this person be able to take the place of the manager and manage the company in terms of who they are, their environment, their constraints, their personal project? ”
Only you can provide the answers to these questions!
To do this, repeat each point discussed previously, among which:
- You with regard to your project, your objectives, your expectations, your personality, your values, your ambitions, your skills, your talents, your resources, your professional background, your available time, the position of your family circle, your constraints, etc..
- Your entrepreneurial project in terms of vision, mission, sector of activity and target market, company size, financial investment, target business model, single or multiple projects, etc.
- Your predefined selection criteria, such as location, type of activity, level of turnover, profitability, market share and growth potential, type of clientele, type of products or services, the technology used, price range etc.
… and show all the elements of the match between the target company, you, your entrepreneurial project.
Are you the right person to take over this business? This step will allow you to provide some answers to this question and to validate your choice of target. Your structured approach will be a first pledge of the seriousness and professionalism of your preparation in the construction of the project.
Establish The Diagnosis Of The Company
Can defects call into question the acquisition of the target company? What are the factors influencing the price? Is this company the one that will allow you to achieve the goals of tomorrow? Here are three questions that justify the need for a diagnosis! It’s up to you to collect and analyze all the information necessary for your analysis to establish your overall judgment on the company. Structure your analysis process, prioritize the stages of your diagnosis and know how to solicit the seller wisely! For you, it is a first test to challenge your skills, your professionalism and to assess your ability to run the business. For the transferor, who wonders if he is in the presence of the right buyer, he will not fail to appreciate and evaluate your “way of doing”.
In this section, we offer you work paths through a non-exhaustive list of the main documents to collect and the moment at which you must ask to have access to them to establish the diagnosis of the company.
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Strategic Diagnosis
To steer his boat, a business manager uses strategy! It can be clearly defined or intuitive! However, you will need to clearly identify the strategy implemented in order to compare it with the one you could manage. The question to ask yourself about the past strategy: in a changing environment, what purposes and what objectives have been determined to configure the resources and skills of the company in order to obtain a competitive advantage and meet the expectations of the market and the parties stakeholders of the company? The question to ask yourself about the strategy to come: are strategic changes necessary? If yes! Under what conditions are they feasible?
In this section, we offer you a tool, the SWOT analysis, to enable you to carry out the strategic diagnosis: the assessment of the state of the company’s skills and resources as well as the opportunities and risks of the environment.
Diagnosis Of Products, Markets, Competition
Here is the diagnosis not to be overlooked! Let us recall the obvious: any company aims to meet the needs and expectations of its customers and give them satisfaction. But the achievement of this objective takes place in a complex, changing and even uncertain environment. What are the impacts of political, economic, sociological, technological, ecological and legal factors? What are the forces that structure the competitive dynamics of the company? What is the bargaining power of customers, distributors, providers? Could potential new entrants disrupt your market? What are your market segments? What is the value perceived by your customers? What is the business strategy used? What is the company’s current positioning in its market with regard to its offer? Are there any opportunities or threats? … And above all, development potential!
In this section, we suggest that you validate the consistency of the company’s offer and demand. Making the diagnosis of products, markets and competition for assessing and understanding the needs, attitudes and expectations of your customers to adapt its offer and develop its business strategy.
Accounting And Financial Diagnosis
The accounting and financial analyzes complement each other to answer the same question: is the company financially interesting to take over?
The accounting diagnosis will focus on “small lines”, but which are very important! For example, is the stock correctly valued? Do the depreciation correspond to the real degree of obsolescence of the equipment? Etc. The financial diagnosis will study the financial and economic performance of the company (its profitability, the relevance of management choices, etc.), its solvency (the potential risk it presents for third parties, its ability to meet its commitments, etc.) and its heritage.
In this section, we present the essential elements of accounting and financial diagnosis.
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Legal Diagnosis In The Context Of A Company Transfer
The objective is to know what is the legal organization of the company. What are the current contracts and the contractual obligations attached to them? What are the advantages and disadvantages? What are the risks weighing on contractual relationships or on the company’s legal environment? Are changes being considered?
In this section, we suggest you sweeping together the points to check as well as the main documents to analyze to complete your legal diagnosis.
Diagnosis Of Means Of Production
Make sure that the work tool required for operation is in good condition, even efficient! Don’t neglect anything! State and location of real estate, state of the material, installations, equipment, analysis of stocks and more generally of organization, management and production, the existence of patents, trademarks etc.
Are you wondering how to carry out this diagnosis? 4 steps: Identify strengths and weaknesses; analyze the causes; list the corrective actions; encrypt them!
The means of production of goods or services are the physical capacities to produce wealth. In other words, the heart of mechanics! This is why you must be vigilant in everything during your diagnosis.
In this section, we offer you an overview of the points to analyze in order to carry out your diagnosis of the means of production.
The “Human Resources” Diagnosis
In his day, Henry Ford declared: “The two most important things do not appear on the balance sheet of the company: its reputation and its men”. It is still true! The human factor is a way for companies to increase their competitiveness, it is an engine of growth. In the process of creating wealth, people, their skills and their ability to evolve can represent a real asset, even a major strategic stake. Of course, the diagnosis of human resources will go through regulatory aspects, respect for social rules, the discovery of the company’s culture and its social climate! Start going beyond! The ship changes captain! It is always a troubling time for employees. Identify the key figures, meet them,
In this section, we will identify the main social risks and give you tips on how to analyze the impact of the departure of the manager, or even the management team. These elements must be included in your human resources diagnosis.
The Corporate Social Responsibility (CSR) Diagnostic
The European Commission has defined corporate social responsibility as “the responsibility of companies with regard to the effects they have on society”. To assume this responsibility, we must respect the legislation and collective agreements. To fully discharge this, it is necessary to have initiated, in close collaboration with stakeholders, a process to integrate social, environmental, ethical, human rights and consumer concerns into business activities and strategy. core business.
But let’s start from the beginning: compliance with the legislation in force! What are the applicable regulations? What are they about?
To answer these questions and allow you to carry out your CSR diagnosis , we have prepared a summary table of all the obligations and administrative procedures.
Diagnosis Analysis For The Entrepreneurial Project
That’s it ! You have successfully completed the external and internal diagnosis of the company! Congratulations. Your vision of the company and its environment is now much sharper. This dive in the course of the company, allowed you to identify the strengths, the weaknesses, to understand the opportunities and the threats of the company. You better understand the strategic options now possible, the actions to be implemented, the objectives to be set, the investments to be made, the development plan to be followed, etc. But, without wanting to spoil this great enthusiasm, have you taken the time to take stock of your entrepreneurial project? Remember! You had defined it before you even went looking for a target company.
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