Preparing to acquire another business comes with a lot of planning and consideration. The strategy behind acquisition planning is vastly important, as it leads to stronger outcomes for all parties involved. Making financial projections, or providing a detailed overview of your company’s operations post-acquisition, is a large part of that strategy.
When making financial projections for an acquisition, it’s important to both analyze the target business’ financial history and make business projections based on that analysis—allowing you to make sound financial decisions as an acquirer.
Evaluating Financial History
Analyzing the target business’ past financial performance is vastly important prior to embarking on an acquisition. When evaluating one’s financial history, you should pay attention to the following areas:
- Income Statements: These financial statements display the evaluated company’s revenues and expenses throughout a period of time.
- Balance Sheets: By evaluating this piece of information, you’ll learn the company’s cash position at a particular time.
- Cash Flow Statements: Provides a demonstration of how much cash is entering and leaving the business.
It’s important to note that this section should involve three years of corporate tax returns and interim financial statements that are less than 90 days old.
Making Financial Projections
After comprehensively analyzing and outlining the financial history of the target business, you can begin making financial projections. When making projections, its imperative to utilize realistic figures and assumptions, including complete financial statements for both your business and your target business to support and justify the projections for your acquisition. Financial projections should include:
- Projection of your company’s sales or income
- Projection of expenses
- Estimated level of investment in current and fixed assets
- Calculation of the company’s financing needs.
You should be able to provide monthly projections for the first year followed by at least one additional year of projections. Additionally, thorough explanations of the assumptions you used to create each financial projection should be provided.
When attempting to successfully obtain financing for an acquisition, delivering well-researched and robust financial projections is essential. Busey’s team of SBA Lending Specialists has the experience and tools to guide you through the various acquisition funding options available to you.