How to Grow Your Business Through Acquisitions?

Do you own a business and are looking to grow?

Growing a business can occur through a business acquisition strategy or organically, depending on the products or services offered to customers and their market acceptance. Accelerating business growth can be achieved through effective marketing and advertising, which puts products and services in front of a larger customer base.

A second option is to buy a business for sale that complements the one you currently own and operate, and combine them to introduce complementary products and services from each company, thereby moving the combined business to the next level. This concept is known as entrepreneurship through acquisitions or growth through acquisitions.

If you have an interest in buying a business for sale that services the Environmental Industry, this may be the right opportunity for you.

This article also answers the question of how to buy a business.

How to Buy an Existing Business?

Buying a business that focuses on environmental services can be challenging if you don’t have a proper plan or strategy in place.

Here are 7 steps to buying an existing business.

1. Find a business to purchase.
2. Business valuation methods – value a business.
3. Negotiate a purchase price.
4. Try to obtain financing or a loan to buy a business
5. Submit a Letter of Intent (LOI)
6. Complete buyer due diligence.
7. Close the transaction.

What is the value of the business?

One of the first steps, once you find a business to purchase, is to assess the business’s price. Is this a purchase price that you can pay in cash for, or qualify for a loan?

Here are 4 essential steps to obtain a business valuation:

Step 1:  Determine the SDE or EBITDA of the business

The seller of the business should provide the SDE (Sellers’ Discretionary Earnings) or EBITDA (Earnings Before Interest, Taxes, and Depreciation) as part of their presentation of whether the business is for sale.

SDE and EBITDA are important concepts as they explain how much, as the buyer of the business, you would earn if you operated the business in the same manner as the seller. This is also important if you need to get finance, as this is one of the key data points a lender will want to know.

Step 2:  Business valuation methods

There are different approaches to valuing a business. There are only three approaches, but each has its distinct business valuation method.

The three approaches are:

• Asset approach
• Income approach
• Market approach

Within the Income approach, there are various business valuation methods, each with its valuation formulas. These business valuation calculators include the Multiple Discretionary Earnings method, the Factors method, the Buyer Test method, the Capitalization Rate of Normal Earnings, and the Discounted Cash Flow method, among others.

One thing to be cautious about is choosing the proper business valuation methods. Remember, you are valuing a privately held business, not publicly trading on the New York Stock Exchange. To get the most out of business valuations, there are many business valuation services that you can contact, and they will do all the heavy lifting for you. Remember to look for a professional service with a California state-licensed valuation and appraisal service.

Using a Times Revenue method is more suitable for companies trading on the New York Stock Exchange or those generating millions of dollars in gross revenue; it is not typically used for privately held companies or small businesses with less than $20 million in annual gross revenue.

The Times Revenue method can also be misleading. Suppose you have a business generating $22 million in gross revenue per year, and it costs $23 million to generate that revenue. In that case, it is not an attractive business to buy unless you can bring a very specialized turnaround skill.

Negotiate the purchase price by making an offer or submitting an LOI

After you have found a business to buy and the business valuation is done, the next step is to make an offer to see if the seller is willing to accept or negotiate it.

There are arguments to be made for including as much as possible in the LOI, so it is clear what is essential to the buyer. The opposite argument is not to include too much detail in the LOI, as it can kill the deal, as the buyer and seller spend too much time arguing about details that require more information.

What is critical is to ensure the LOI includes the items that are most important to the buyer, so you can expect the seller to respond about what is critical to them.

Offers are usually made with an LOI, an Indication Of Interest (IOI or a Definitive Asset Purchase Agreement.

If the buyer requires financing from a third-party lender, this should be clear, including the steps the buyer has taken to obtain financing.

Buyer Due Diligence in 7 Steps

As the buyer of a small environmental business in California, if you have made an offer and the seller has accepted it, the next step in buying an environmental business for sale in California is to complete a due diligence checklist.

Here is a buyer due diligence checklist with a step-by-step guide:

1. Review and verify the physical location of the business, as well as all related real estate leases and contracts.
2. Examine the financial statements of the business, including tax returns, profit and loss statements (P&L), and Balance Sheets.
3. Review the business’s operations.
4. Review all vendor and client contracts, including the lease, if applicable. Do this very carefully, as the seller will be unwilling to share too much information until you have bought the business, especially if you are a competitor.
5. Familiarize yourself with the organizational chart and employee information. (There will be a limit on how much the seller can share with you due to California privacy laws.)
6. Review and verify other relevant legal documents or issues that are important to the transaction. (Having your attorney assist may be necessary.)
7. Review and check all assets and intellectual property.

An item almost every buyer wants to review in detail is the business seller’s customer list. A business owner may not be willing to disclose this information until the sale of the business closes, as it is one of the most important assets of their business.

Are you ready to buy a business in the environmental services sector?

If you own a small green business and would like it to grow more quickly than it would organically, or if you are an employee with a passion for owning a green business and are ready to become an employer in California, what is holding you back?

There are many risks to manage. If you can become comfortable with those risks and have an interest in an environmental service business, here is a profitable green business ready to buy.

Check the business for sale listings to see if there is a business that interests you for a successful business acquisition.