How to Grow Your Business Through Acquisitions?
Do you own a business and are looking to grow? Growing a business can take place through a business acquisition strategy or organically based on the products or services you are offering and their acceptance in the market. Growing the business faster can happen with marketing and advertising to get the products and services in front of more customers.
A second option is to buy a business for sale, so it complements the business you currently own and operate and put them both together to introduce complementary products and services of each company and move 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 difficult if you do not have a proper plan or strategy in place.
Here are 7 steps to buying an existing business.
Step 1: Find a business to purchase.
Step 2: Business valuation methods – value a business
Step 3: Negotiate a purchase price.
Step 4: Try to obtain financing or a loan to buy a business
Step 5: Submit a Letter of Intent (LOI)
Step 6: Complete buyer due diligence.
Step 7: Close the transaction.
What is the value of the business?
One of the first steps, once you find a business to buy, is to look at the price of the business thought that comes to mind is to check and review the value of the business that you want to acquire.
Here are 4 important steps to obtaining 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 they do have different business valuation methods.
The three approaches are:
Within the Income approach, there are also different business valuation methods with different business valuations formulas, and these business valuations calculators include the Multiple Discretionary Earnings method or Factors method, Buyer Test method, Capitalization Rate of Normal Earnings, and Discounted Cash Flow method to name a few.
One thing to be careful about as you choose your business valuation methods. Remember you are valuing a privately held business and not a business that is publicly traded. To have 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 for a publicly-traded company or a company doing millions of dollars in gross revenue – it is not typically used for a privately held company or small business valuations doing less than $20 million per in gross revenue.
The Times Revenue method can also be misleading. If you have a business doing $22 million per year in gross revenue and it costs $23 million to generate that revenue that 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 to include as much as possible in the LOI so it is clear what is important to a buyer. There is a similar argument to be made that if the LOI is too detailed it can kill the deal as the buyer and seller may end up arguing about details that are not that important.
What is critical is to make sure the LOI has the items that are critical to the buyer so you can expect the seller to reply about what is critical to them.
Offers are normally made with an LOI but can also be made with an Indication Of Interest or IOI or a Definitive Asset Purchase Agreement.
If the buyer requires getting finance from a third-party lender, this should be clearly stated including what the buyer has done to try and obtain finance.
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 when moving to buy an environmental business for sale in California is a due diligence checklist.
Here is a buyer due diligence checklist with a step-by-step guide:
Step 1: Review and check the physical location of the business and all related real estate leases and contracts.
Step 2: Examine the financial statements of the business including tax returns, P&L, and Balance Sheets
Step 3: Review the operations of the business.
Step 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.
Step 5: Understand the organizational chart and employees’ information. (There will be a limit on how much the seller can share with you due to California privacy laws.)
Step 6: Check and review other legal documents or issues that are important to the transaction. (Having your attorney assist may be necessary)
Step 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 will not be willing to disclose this information until the sale of the business closes as 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 green small business and would like it to grow quicker than watching it grow 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 you need to manage. If you can become comfortable with those risks and you have an interest in an environmental service business, here is a profitable green business ready to be acquired.