Business owners looking to grow have several paths to success. One of the roads often taken is through buying or merging with a smaller business. According to the U.S. Small Business Administration, the process is similar to starting a new business, but business owners need to take extra steps to protect their existing operations.

While often linked together, mergers and acquisitions are similar but have a few major differences, the SBA said.

“Mergers combine two separate businesses into a single new legal entity,” according to the SBA. “True mergers are uncommon because it’s rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs.”

In the case of acquisitions, a new company is not created.

“The purchased company gets fully absorbed by the acquiring company,” the SBA said. “Sometimes this means the acquired company gets liquidated.”

The first step is to calculate how much the target business is worth.

“There are several ways to value a business, so do extensive research on methods if you choose to do it on your own,” the SBA said. “You might want to hire a qualified business appraiser. Once you know how much the other business is worth, you’ll know whether you can afford it outright or if you need to get more funding.”

The next step is preparing a sales agreement.

“This document allows for the purchase of assets or stock of a corporation,” according to the SBA. “An attorney should review it to make sure it’s accurate and comprehensive. Don’t leave out any assets and liabilities, or this can create problems even after the sale has been finalized.”

Once an agreement is reached and the transaction initiated, it is time to transfer business ownership.

“The terms of your agreement will dictate which steps you must take to transfer ownership, and what that ownership will look like,” the SBA said. “It’s widely recommended to have an attorney help with this step.”

SOURCE: U.S. Small Business Administration